Kumar Mangalam Birla-controlled Hindalco Industries, the country's largest aluminium producer, on Sunday announced the acquisition of Atlanta-based Novelis for an enterprise value of nearly $6 billion in cash, which will help it gain large customers like Coca-Cola, Ford and General Motors.
Codenamed Red Socks, the deal envisages a payment of $44.93 per share, which is 16.5 per cent more than its last closing prices, to Novelis shareholders, amounting to a total of $3.5 billion. In addition, Hindalco will take on its books Novelis' debt of $2.4 billion.
The acquisition, which requires approval of 66 per cent of Novelis' shareholders, is expected to be completed by the second quarter of 2007. The Novelis board has recommended the offer to its shareholders, largely financial institutions.
"The acquisition will catapult the group into the Fortune 500 league, three years ahead of the target. The combination of Hindalco and Novelis will establish a global integrated aluminium producer," Birla said.
Spurred by an economy growing at more than 9 per cent a year and the country's recent rating upgrade, Indian companies are seeking acquisitions in mature overseas markets to sell higher-margin goods and add capacities and products.
Hindalco's purchase comes days after Tata Steel outbid CSN of Brazil to bag UK steelmaker Corus Group Plc for $12 billion and Suzlon Energy trumped Areva with a $1.3 billion bid for Repower Systems of Germany.
Novelis, which was spun off from Alcan Inc to meet anti-trust concerns after acquiring France's Pechiney SA for about $4 billion in February 2004, controls 19 per cent of the world's flat-rolled aluminium production and supplies to companies like Ford Motor Co, Eastman Kodak Co, and Thyssenkrupp Ag.
It is also the global leader in recycling of aluminium cans. The company operates in 11 countries and has 12,500 employees.
"We would like to acquire 100 per cent of the company. According to Canadian law, if we get 66 per cent of the equity capital of the company, we can automatically buy the remaining shares at the same price," said Birla, adding, "There is no possibility of another bidder. In case a third party bids now, we will get $100 million as break-up fee."
To finance the deal, Hindalco will contribute $450 million from its treasury operations, while a closely held group company, Essel Mining & Industries, will invest another $300 million. UBS is the financial advisor to Hindalco for the acquisition.
The Novelis management will remain unchanged after the acquisition. Hindalco will take a call on joining the board later. There will be no job cuts at Novelis and Debu Bhattacharya, the managing director of Hindalco and a director in the Aditya Birla group, will be the head of Aditya Birla group's metal businesses.
"The acquisition will help Hindalco to shorten the learning curve for technology, which was a need for us at Hindalco. Hindalco has strong presence in upstream and metal businesses, while Novelis is a world leader in downstream businesses. The combination will make us immune to the high volatility in commodities markets," Bhattacharya said.
Novelis has about $3.2 billion in debt and loans outstanding. On November 14, it reported a loss of $102 million, or $1.38 a share, in the third quarter.
In 2005, the company had reported net sales of $8.4 billion but incurred a loss due to contractual obligations. It is expected to be in the black in 2010.