Mumbai, Feb. 11: Hindalco Industries Ltd of the AV Birla group is acquiring Novelis Inc, the world’s top producer of aluminium rolled products, in an all-cash transaction of around $6 billion. This is the second largest cross-border acquisition by an Indian company after the Tata Steel-Corus deal.
Novelis, which garnered around $8.4 billion revenues in 2005, is a loss-making company. For the third quarter of 2006, it suffered a net loss of $102 million. Hindalco, however, sees huge benefits from the acquisition.
Apart from gaining access to global markets on a much wider scale as Novelis operates in 11 countries, Hindalco’s share in downstream aluminium products, which yields high returns, will drastically go up after the buyout.
This is because Novelis has a strong presence in these downstream segments. It is the global leader in aluminium rolled products and aluminium can recycling. It has a 19 per cent global market share in foil products and 25 per cent in construction and industrial products. In beverage cans, it has a market share of more than 43 per cent.
After the transaction, Hindalco, with Novelis, will be the world’s largest aluminium rolling company. The duo will also figure among the world’s top five in all aluminium products put together.
The acquisition will make the AV Birla group a Fortune 500 conglomerate with turnover in excess of $20 billion.
Hindalco will pay $44.93 per share in cash to the shareholders of Novelis, many of whom are institutional investors. This price is at a 17 per cent premium to the closing price of Novelis on Friday.
The deal includes around $2.40 billion of Novelis’ debt. Hindalco will finance $450 million of the deal from its treasury operations and the rest through debt.
This includes a non-recourse debt based on the balancesheet of Hindalco, which will be $3.1 billion, and the balancesheet of Novelis, which will be $2.8 billion.
The transaction is expected to be completed in the second quarter of this calendar year. The Birlas will complete the deal by way of a plan of arrangement under the applicable Canadian law. Under this plan, the acquisition proposal will have to be okayed by 66 per cent or two-thirds of the votes cast by shareholders of Novelis Inc at a special meeting to consider the arrangement. This will be followed by a court approval process. If the necessary votes are not obtained, Hindalco can walk away from the deal.
If more than 66 per cent of the shareholders okay the proposal, the rest (who have not supported the deal) will have to tender their shares.
Kumar Mangalam Birla, chairman of the Aditya Birla Group, said, “The acquisition of Novelis is a landmark transaction for Hindalco and our group. It is in line with our long-term strategies of expanding our global presence across various businesses and is consistent with our vision of taking India to the world. The combination of Hindalco and Novelis will establish a global integrated aluminium producer with low-cost alumina and aluminium production facilities combined with high-end aluminium rolled product capabilities.”
Birla said other players were also interested in acquiring Novelis, and they had submitted their bids. On the possibility of a counter-offer from another player, Hindalco managing director Debu Bhattacharya said while they had made a strong proposal, the company will also rake in around $100 million as “break fee” if there is a counter-bid and it is considered by the board of Novelis.
Alcan, one of the world’s largest aluminium company, had spun off Novelis to meet antitrust worries after it acquired Pechiney SA of France in February 2004.