ACQUISITION OF NOVELIS BY HINDALCO

1. ACQUISITION OF NOVELIS BY HINDALCO Submitted To:- Submitted By:- Mrs. Drashti Shah 15. Divya Joshi 22. Priyanka Maisuriya 45. Varsha Ruparelia 50. Ruchi Shah 56.Jigna Thakkar

2. Agenda: • Introduction Of Acquisition • Pre – Acquisition • Post - Acquisition • Conclusion

3. Acquisitions:- • An acquisition, also known as a takeover or a buyout, is the buying of one company (the ‘target’) by another. • An acquisition may be friendly or hostile. • In the former case, the companies cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. • Acquisition usually refers to a purchase of a smaller firm by a larger one.

4. Acquisition is beneficial: • when a firm wants to enter a new market • when a firm wants to introduce new products through research and development • when a forms wants achieve administrative benefits • Acquisitions may generate tax gains, can increase revenue and can reduce the cost of capital.

5. Post 1991 era witnessed growing appetite for takeovers by Indian corporate also across the globe as a part of their growth strategy. This series of acquisitions in metal industry was initiated by acquisition of Arcelor by Mittal followed by Corus by Tata’s. Indian aluminium giant Hindalco extended this process by acquiring Atlanta based company Novelis Inc, a world leader in aluminium rolling and flat-rolled aluminium products. Continue. . . • The series of acquisitions in metal industry was initiated by acquisition of Arcelor by Mittal followed by Corus by Tata’s. • Indian aluminium giant Hindalco extended this process by acquiring Atlanta based company Novelis Inc, a world leader in aluminium rolling and flat-rolled aluminium products.

6. Pre-acquisition

7. Hindalco Industries Limited • ‘We look upon the aluminium business as a core business that has enormous growth potential in revenues and earnings,' 'Our vision is to be a premium metals major, global in size and reach. The acquisition of Novelis is a step in this direction’ -Kumar Mangalam Birla, Chairman, Hindalco Industries. • Established in 1958. • Hindalco has a total 60 percent share in the growing Indian market for rolled products.

8. The aluminium division's product range includes alumina chemicals, primary aluminium ingots, and billets, wire rods, rolled products, extrusions, foils and alloy wheels. • Ranks among top quartile of low cost producers in the world. Structured into two strategic businesses aluminium and copper. • Annual revenue of us $14 billion. Market capitalization in excess of US $ 23 billion.

9. Novelis • Novelis is the world leader in aluminium rolling, producing an estimated 19 percent of the world's flat-rolled aluminium products. • The company recycles more than 35 billion used beverage cans annually. • Industry-leading assets and technology. • Alcan cast out its rolled products business to form novelis. • No.1 in rolled products producer in Europe, South America and Asia. • Facilities to produces metal cans for Pepsi and Coke.

10. Novelis ended up inheriting a debt mountain of almost $2.9 billion on a capital base of less than $500 million. • Debt-equity ratio of 7.23:1. • Promised four customers not to increase product prices even if raw material aluminium prices went up beyond a point. • Loss of $350 million. • The company reported net sales of us $7.4 billion and net loss of US $170 million in nine months during 2006

11. Important Facts About Deal • An all-cash transaction, enterprise value of approximately US $6.0 billion, including approximately US $2.4 billion of debt. • By january 1, 2010, all the sales contracts will get expired. • Hindalco shipped primary aluminium to novelis for downstream value addition. • The debt component of novelis stood at us $2.4 billion and additional US $2.8 billion will be taken by hindalco to finance the deal. • Crisil placed its outstanding long-term rating of ‘aaa/stable’ on hindalco. • Paying us $44.93 A share.

12. The Benefits From This Acquisition • The company will get a strong global footprint. • Joint entity will become insulated from the fluctuation of LME aluminium prices. • Will give hindalco a strong presence in recycling of aluminium business. • Recycling it requires only 5% of the energy needed to produce primary aluminium. • Novelis has a very strong technology for value added products and its latest technology ‘novelis fusion’ is very unique one.

13. Target of doubling its turnover to $ 20 billion three years in advance. • Any change in the raw material price is directly passed on to the customers who range from coca cola to automobile companies like aston martin. • It would have taken a minimum 8-10 years & us $12 billion to hindalco for building these facilities, if hindalco takes organically route. • Novelis is in leader in rolling business with a market share of 20%. • Hindalco was dependent on the aluminium prices and when the prices are high they make a larger margin, this not the case with rolling business which usually has a constant margin.

14. Reasons for Acquisitions • Increased market power • Learning and Developing new capabilities • Overcoming the new entrants into the industry. • Cost of new product development • To avoid excessive competition

15. FUNDING STRUCTURE FOR THE DEAL • With a debt-equity ratio of 7.23:1, Novelis couldn't borrow any more. • borrowed $2.85 billion, $300 million raised as debt from group companies and $450 million mobilised from its cash reserves. • That is almost a third of the Rs 2,500 crore net profits Hindalco estimated to post in 2006-07. • The second part of the deal is the $2.4-billion debt on Novelis’s balance sheet.

16. STRATEGIC RATIONALE FOR ACQUISITION • Hindalco will be able to ship primary aluminium from india and make value-added products. • Low-cost alumina and aluminium facilities combined with high-end rolling capabilities. • Increasing scale of operation, entry into high—end downstream market and enhancing global presence. • Access to customers such as general motors corp. And coca-cola co. • World's leading aluminium maker.

17. VALUATION FOR ACQUISITION • Too high a price for a company that incurred a loss of US $170 million for the nine months ended 30 september 2006. • Its share prices never crossed us $30 in 2005-06. • Target of doubling its turnover to $ 20 billion three years in advance. • Novelis management has indicated a pre-tax profit of us $35 million-100 million for 2007, hindalco was being optimistic. • Novelis nearly 50% larger than hindalco’s current market capitalization.

18. Post acquisition results

19. (Rs. Crores) (Bn US$) Free cash Flows improved by $ 164 Mn

21. Hindalco is now a global player with a strong presence in five continents. • product portfolio which is a natural hedge against the volatility of aluminium prices. • Novelis has reported a net profit of USD 28 million (under US GAAP) for the period 16 May 2007 to 31 March 2008 vis-à-vis a loss of USD 265 million (under US GAAP) in FY2007. • Total shipments increased from 3113 kt to 3150 kt. • Novelis Reported revenue of US$10.2 billion in its 2009 fiscal year.

22. conclusion

23. To conclude the achievements in the fiinancial year, the company recorded a commendable performance in an extremely difficult year that witnessed unprecedented events in the financial and commodity markets. • This performance is because of the underlying strength of business operations & project management capabilities.

24. Thank You