Merger & Acquisition (Hindalco & novelis)Submitted by : Click to edit Master subtitle style Hetal

4/15/12

Outline of the case.

v v v v v v v v

v

sector snapshot proposal, type of takeover Facts of the case synergy benefits,, swap ratio and consideration activity, due diligence, value to investors (stock mrkt perspective) 4/15/12 analysts view of the merger

INTRODUCTIONIndustry overview: Highly concentrated industry with only five primary plants in the country. Bayer-Hall-

producers.

Heroult technology used by all

Energy

cost is 40% of manufacturing cost for metal and 30% for rolled products. cost of technology is the main barrier in achieving high energy efficiency. 4/15/12

High

Hindalco Industries Ltd.

Structured into two strategic businesses Aluminium and Copper. It enjoyed domestic market share of 42% In primary aluminium, 63 % in rolled products, 20 % In extrusion , 44 % in Foils & 31% in wheels. Annual revenue of US $14 billion. market capitalization in excess of US $ 23 billion. The aluminum division's product range includes alumina chemicals, primary aluminium ingots, and billets, wire rods, rolled products, extrusions, foils and alloy.

4/15/12

Novelis

It was born in early 2005 as a result of a forced spin-off from its parent, the $ 23.6-billion aluminium giant and Canada-based Alcan. 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. company is No. 1 rolled products producer in Europe, South America and Asia, and the No. 2 producer in North America. involved extensive operations in over 35 plants in 11 countries and four continents. 4/15/12

The

The

This

Contd.

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.

4/15/12

Synergy benefits : The

combination of Hindalco and Novelis will establish a global integrated aluminum producer with low-cost alumina in the low cost Aluminium Production and novelis in the aluminium rolled products major market share

Hindalco

the

4/15/12

Effect of merger on industry Indias

demand for aluminium products is projected to double from 1 million tones in 2007 to almost 1.9 million tones in 2012, and half of that increase will be for the kind of flat-rolled products Novelis produces. Thus, India could absorb a third of the North American companys output in three years time

4/15/12

Downstream business derives its margin through

conversion mark-up, should act as a natural hedge for LMEdriven, volatile, upstream commodity business.

Industry leading technology, assets and expertise can be leveraged to grow high-value-added, flat rolled products in fast-growing markets such as India and China

4/15/12

Deal structureDivided into 2 parts1)100% of Novelis equity @44.93$ per share which add up to $3.6b 2)$2.4b debt on Novelis balance sheet - No Option of Leverage buyout unlike TATA Corus

4/15/12

Due dilignce

The rationale: The 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. Immediate global reach and scale along with technological expertise. access to customers such as General Motors Corp. and Coca-Cola Co4/15/12

FUNDING A MEGA-DEAL: 2007 $2.4

billion will be raised on the balance sheet of NovelisAV Minerals (Netherlands) a indirect subsidiary of Hindalco raised bridge loans of $2.13 billion [CR @ 7.2%] & 900 million

Hindalco

raised a debt of $2.8 billion.

$450 million from its cash reserves Essel Mining, another A V Birla group company, chipped in with $300 million from its reserves. Tied up with ABN Amro Bank, Bank of America and UBS for the Asian leg of the transaction, The non-recourse debt raised on Novelis' books funded through ABN Amro and UBS4/15/12

Business Process Integration Plain

and simple techniques to manage business. It set up a company to manage IT functions of Novelis due to availability of inexpensive engineers. Hindalco has set Novelis a target of seven to 12 stock turns per year by 2010,which could free around $300 million in working capital

4/15/12

valuatuionHindalco issued equity shares of Re. 1 each on rights basis @ Rs. 96 per share Ratio of 3:7 in September, Aggregating to 525,802,403 shares. Total Amount receivable of Rs. 5,047.70 Cr Company has received Rs. 4,545 Cr Rs. 124.90 Cr spent on related expenses of the rights issue Balance amount utilized to repay the bridge loan taken for acquisition of Novelis.

4/15/12

Analyst view: There

were significant geographical market and product synergies . This acquisition gave Hindalco access, not only to higher-end products but also to superior technology. This was in line with Hindalcos plans to triple aluminium output to 1.5 million metric tonne by 2012 to become one of the worlds five largest producers from the position of worlds 13th-largest aluminium maker till 20074/15/12

Benefits:Post acquisitions, the company will get a strong global footprint. After full integration, the joint entity will become insulated from the fluctuation of LME Aluminium prices The deal will give Hindalco a strong presence in recycling of aluminium business. Novelis has a very strong 4/15/12

THANK YOU

4/15/12