How do you look at the valuation? Those fears are completely unfounded. The way to look at valuation is to see other comparable transactions in the same sector. I would say that 7. Why would you say Aleris is a perfect fit for Novelis and Hindalco? I understand they are into value added products and that will give it a boost, but going forward what is the kind of synergy benefits that you see between the two companies?
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Last decade witnessed growing appetite for takeovers by Indian corporate across the globe as a part of their inorganic growth strategy. In this chain Indian aluminium giant Hindalco acquired Atlanta based company Novelis Inc, a world leader in aluminium rolling and flat-rolled aluminium products.
Hindalco Industries Ltd. Strategically, the acquisition of Novelis takes Hindalco onto the global stage as the leader in downstream aluminium rolled products. Followings are the main issues to be discussed for critical review of this case: 1. What is the strategic rationale for this acquisition? Were the valuation for this acquisition was correct? What are financial challenges for this Acquisition? What is the future outlook of this acquisition? Post era witnessed growing appetite for takeovers by Indian corporate also across the globe as a part of their growth strategy.
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. The acquisition of Novelis by Hindalco bodes well for both the entities. Novelis, processes primary aluminium to sell downstream high value added products. This is exactly what Hindalco manufactures. This makes the bond a perfect fit. Currently Hindalco, an integrated player, focuses largely on manufacturing alumina and primary aluminium.
It has downstream rolling, extruding and foil making capacities as well, but they are far from global scale. Novelis processes around 3 million tonnes of aluminium a year and has sales centers all over the world. Hindalco has completed this acquisition through its wholly-owned subsidiary AV Metals Inc and has acquired Hindalco Industries Ltd has completed its acquisition of Novelis Inc under an agreement in which Novelis will operate as a subsidiary of Hindalco.
Features of Indian Aluminium Industry: 1. Highly concentrated industry with only five primary plants in the country 2. Controlled by two private groups and one public sector unit 3. Bayer-Hall-Heroult technology used by all producers 4. Electricity, coal and furnace oil are primary energy inputs 5.
All plants have their own captive power units for cheaper and un-interrupted power supply 6. Energy management is a critical focus in all the plants 9. Two plants have declared formal energy policy Achievements in energy conservation are highlighted in the Annual Report of the company Generally, government policies were rated as conducive to energy management Hindalco commissioned its aluminium facility at Renukoot in eastern U.
It enjoys a domestic market share of 42 per cent in primary aluminium, 63 per cent in rolled products, 20 per cent in extrusions, 44 per cent in foils and 31 per cent in wheels. Hindalco Industries Limited has a Novelis is the world leader in the recycling of Used aluminium beverage cans.
The company recycles more than 35 billion used beverage cans annually. The company is No. With industry- leading assets and technology, the company produces the highest-quality aluminium sheet and foil products for customers in high -value markets including automotive, transportation, packaging, construction and printing.
Novelis is a new company, formed in January , with a new velocity, a new philosophy and a new attitude. But Novelis is also a spin-off from Alcan and, as such, draws on a rich year history in the aluminium rolled product marketplace. Alcan won a hostile offer to merge with French aluminium company Pechiney. Both Alcan and Pechiney had bauxite mines, facilities to produce primary aluminium, and rolling mills to turn the raw metal into products such as stock for Pepsi and Coke cans and automotive parts.
But the US and European anti-trust proceedings ruled that the rolled products business of either Alcan or Pechiney had to be divested from the merged entity.
Alcan cast out its rolled products business to form Novelis. That was just the beginning of its troubles. The situation is worse now. Though it marginally reduced debt, it made some losses too. It buys primary aluminium, processes it into rolled products like stock for soft drink cans, automotive parts, etc.
But the management took a wrong call on aluminium prices. In a bid to win more business from soft drink manufacturers, it promised four customers not to increase product prices even if raw material aluminium prices went up beyond a point.
A few months after Novelis signed those contracts, aluminium prices shot up 39 per cent between 30 September and To these four customers, Novelis was forced to sell its products at prices that were lower than raw material costs.
The company had 36 operating facilities in 11 countries as of December 31, This merger of Novelis into Hindalco will establish a global integrated aluminium producer with low-cost alumina and aluminium production facilities combined with high -end aluminium rolled product capabilities.
After merger Hindalco will emerge as the biggest rolled aluminium products maker and fifth -largest integrated aluminium manufacturer in the world. The Novelis acquisition will give the company immediate scale and strong a global footprint.
Novelis is a globally positioned organization, operating in 11 countries with approximately 12, employees. Some of these contracts are expected to continue for next Year also.
By January 1, , all the sales contracts will get expired and profitability will increase substantially from then onwards. Novelis will work as a forward integration for Hindalco as the company is expected to ship primary aluminium to Novelis for downstream value addition.
Novelis has a rolled product capacity of approximately 3 million tonne while Hindalco at the moment is not having any surplus capacity of primary aluminium. However, we expect the aluminium prices to be softening in long term and this would be positive for Novelis. The profitability will be accretive only in This will put tremendous pressure on profitability due to high interest burden.
This would lead to higher interest rate for the company. Effectively, the Tatas paid only a third of the acquisition price. This was possible because Corus had relatively low debt on its balance sheet and was able to borrow more. But that is not the case with Novelis. With a debt-equity ratio of 7. So, the Birlas were unable to do a leverage buyout. That is almost a third of the Rs 2, crore net profits Hindalco may post in It has reported a net profit of Rs 1, crore for the first three quarters of this year.
Hindalco will be able to ship primary aluminium from India and make value-added products. Novelis is the global leader in terms of volumes in rolled products with annual production capacity of 2. It has presence in 11 countries and provides sheets and foils to automotive and transportation, beverage and food packaging, construction and industrial, and printing markets. Novelis has capacity to produce 3 million tonne of flat- rolled products, while Hindalco has , tonne.
This acquisition gives Hindalco access to higher-end products but also to superior technology, Hindalco plans to triple aluminium output to 1. Hindalco had developed long-term strategies for expanding its operations globally and this acquisition was a part of it. Novelis was the leader in producing rolled products in the Asia-Pacific, Europe, and South America and was the second largest company in North America in aluminium recycling, metal solidification and in rolling technologies worldwide.
One of such technology is a fusion technology that increases the formability of aluminium. This means that it can be better used formed into the design requirement by the car companies. For Hindalco to develop such technology will take a lot of time. Financial numbers show that Novelis is not a good choice by Hindalco at least at the price that they paid for the company.
Novelis fits well in the long term strategy of Hindalco. Going by the optimistic end of the guidance, the price Hindalco paid translates to a market capitalization. Post-acquisition result: Standalone: The total revenue for the year at Rs.
Rupee appreciation, coupled with higher cost due to inflationary pressures, resulted in the fall in EBITDA by 11 per cent. These results need to be viewed in the perspective of a very challenging environment in which they were achieved when virtually all macro-economic factors turned adverse.
Rupee appreciation, duty cut, TcRc fall and unrelenting inputs cost push squeezed margins at both ends. LME was very volatile and started strengthening towards the end of the year; however the average cash LME for the year was marginally lower than previous year. Significant higher production from our Brownfield expansions of both copper and aluminium businesses drove increasing sales volumes in quarter-on-quarter in all four quarters of FY A lower TcRc and lower duty differential severely affected the copper business.
Regardless, business managed to maintain margins on the back of a very strong performance in the fourth quarter. Aluminium business reported revenues of Rs. Copper revenue grew by 10 per cent from Rs. Hindalco continues to be the market leader in both aluminium and copper. Adjustment for earlier year net under tax expenses represents write back of provision for tax resulting from change in estimation of tax liability on progress in tax assessments.
Consolidated results: The total revenue for the year at Rs. Aluminium business revenue was Rs. The consolidated results for the year include the performance of Novelis for the period 16 May date of acquisition to 31 March
Hindalco to acquire Novelis for $6 bn
This deal made Hindalco one of the leading players in the global aluminum industry. The deal inclusive of all debts was valued approximately at 6 billion US dollars. The benefits to Hindalco from this deal were increase in its global presence and access to the most advanced technology in the industry. The Hindalco Novelis merger marks one of the biggest mergers in the aluminum industry. In the words of Mr. The important aspects of the agreement that was signed on 10th February between Hindalco and Novelis are — The deal was values at approximately 6 billion US dollars. This amount was inclusive of all debts.
Hindalco's Novelis closer to acquiring Aleris after it agreed to divest Lewisport operations
Last decade witnessed growing appetite for takeovers by Indian corporate across the globe as a part of their inorganic growth strategy. In this chain Indian aluminium giant Hindalco acquired Atlanta based company Novelis Inc, a world leader in aluminium rolling and flat-rolled aluminium products. Hindalco Industries Ltd. Strategically, the acquisition of Novelis takes Hindalco onto the global stage as the leader in downstream aluminium rolled products.