Hindalco Industries acquired Canadian company Novelis for $6 billion in 2007, making the combined entity the world's largest rolled aluminum producer. Hindalco is an Indian aluminum manufacturing company, while Novelis is headquartered in the US and is the world's largest producer of rolled aluminum sheet. The acquisition provided Hindalco with downstream aluminum processing capabilities and access to Novelis' global customers in industries like automotive and packaging. However, integrating the two companies posed financial challenges for Hindalco from the debt incurred and operational costs.

1. Hindalco-Novelis Acquisition

2. Introduction of company
Hindalco Industries Ltd.
Hindalco Industries Ltd. is an aluminium manufacturing company and is a
subsidiary of the Aditya Birla Group
Headquarters are at Mumbai, Maharashtra, India
It is the Flagship company of the company in the metals business.
The company has annual sales of US$ 15 billion and employs around
20,000 people.
Hindalco is one of the world's largest aluminium rolling companies and one
of the biggest producers of primary aluminium in Asia.
The Hindustan Aluminum Corporation Limited was established in 1958 by
the Aditya Birla Group
 Hindustan Aluminium Company is one of the world's largest
aluminum manufacturing companies and is a subsidiary of the Aditya
Birla Group. It employs 13,675 people and is listed on Forbes 2000. A
metals powerhouse with a turnover of US$14 billion, Hindalco is one
of the world's largest aluminium rolling companies and one of the
biggest producers of primary aluminium in Asia.
 The Hindustan Aluminum Corporation Limited was established in
1958 by the Aditya Birla Group. In 1962 the company began
production in Renukoot in Uttar Pradesh. In 1989 the company was
restructured and renamed Hindalco.
 It was the first company to surpass 0.5 mT of production in a fiscal
year. Its major products include rolled aluminium sheets, aluminium
foil and refined aluminium.
 On February 11, 2007, the company entered into an agreement to
acquire the Canadian company Novelis for US$6 billion, making the
combined entity the world's largest rolled-aluminium producer.

3. Novelis Inc.
Novelis Inc. is an American industrial aluminium company,
Headquartered in Atlanta, Georgia, United States
Novelis is the world’s largest producer of rolled aluminium sheet,
Operations spanning 11 countries and nearly 11,000 employees.
 Novelis Inc. is a global aluminum company headquartered in Atlanta,
Georgia, started incorporated in 2005 as a spin-off from Canadian
mining and aluminum manufacturer, Alcan Inc.
 Novelis is the world’s largest producer of rolled aluminum sheet, with
operations spanning 11 countries and nearly 11,000 employees.
 The company serves customers in sectors including beverage cans,
automotive, consumer electronics, construction, foil and packaging.
 Demand for aluminum is increasing with the continued development
of emerging nations, urbanization, and the increasing substitution of
aluminum for other materials, making expansion a key consideration.
The company is investing $100 million in its first manufacturing facility
in China set to open in 2014. In response to global demand for
aluminum sheet for automotive, electronics and beverage cans, the
company has announced capital investments including a $400 million
expansion in Asia, a $300 million expansion in Brazil and $200 million
expansion in North America.

4. Hindalco-Novelis Acquisition
On 11 February 2007, the company entered into an agreement to acquire
the Canadian company Novelis for US$6 billion
Making the combined entity the world's largest rolled-aluminium producer.
At 2007 Novelis was the world's largest producer of rolled aluminium and a
major recycler of aluminium cans
On 15 May 2007, the acquisition was completed with Novelis shareholders
receiving $44.93 per outstanding share of common stock.
Hindalco, through its wholly owned subsidiary AV Metals Inc., acquired
75,415,536 common shares of Novelis, representing 100 percent of the
issued and outstanding common shares. Immediately after closing, AV
Metals Inc. transferred the common shares of Novelis to its wholly owned
subsidiary AV Aluminum Inc.
When Hindalco made this bid in 2007 this became the largest Indian
investment in North America and the second-largest overseas investment
by an Indian company (behindTata Steel Europe's purchase of Corus two
weeks earlier) to this time.
The day after Hindalco announced the acquisition its stock fell by 13%
resulting in a US$600 million drop in market capitalisation. Shareholders
criticised the deal but K.M. Birla responded that he had offered a fair price
for the company and stated, "When you are acquiring a world leader you
will have to pay a premium”.
 However, since this deal did not involve any payment in equity
shares to the shareholders of Novelis, to be swapped for shares
for Hindalco, and instead it was an all-cash deal structure, this
exercise cannot be said to be a merger.
 This exercise was an acquisition of Novelis by Hindalco, where a
company (Hindalco) buys most, if not all, of the target company's
(Novelis) ownership stakes in order to assume control of the target
firm. Like in most acquisition deals, it was paid for in cash.

5. DEAL STRUCTURE
 It was an all-cash deal (hence, no Exchange Ratio).
 Hindlaco’s AV Metals had acquired all of the Novelis’ outstanding
75,415,536 common shares at a price of US $44.93 per share
 Thus, Novelis equity was acquired for a sum of $3.6 billion against a
book value of $195 million (= $0.195 billion).
 Out of $3.6 billion, $2.85 billion was raised by borrowing, $300 million
as debt from group companies and $450 million from cash reserves.
The other leg of the transaction entailed paying a debt of $2.4 billion
which existed in the B/S of Novelis. For this, Hindalco’s Dutch subsidiary,
AV Minerals, raised bridge loan of $2.13 billion and $900 million
What premium did Hindalco pay?
Deal Price* BV/share EPS MPS(25Jan,07)
Novelis $44.93 $2.6 ($3.71) $30
DP/EBITDA DP/EBIT DP/E
Novelis 11.4 20.7 53.4

6. Sources of Funding
Sl. No.cc Source US $million
1 ABN AMRO 384.64
2 Bank of America 280.63
3 UBS (Singapore Branch) 280.00
4 Bank of India 185.53
5 ICICI Bank 180.26
6 Mizuho Corporate Bank 180.26
7 Deutsche Bank (Singapore Branch) 178.16
8 Citibank (Bahrain Branch) 175.00
9 Standard Chartered Bank 175.00
10 Sumitomo Mitsui Banking Corp 175.00
11 State Bank of India 170.00
12 Bank of Tokyo-Mitsubishi UFJ 150.00
13 BNP Paribas 135.53
14 HSBC 125.00
15 Rabobank 105.26
16 Calyon 100.00
17 Commonwealth Bank of Australia (Singapore Branch) 50.00
Total 3,030.27

7. Post-Acquisition Strategic Benefits to Hindalco & Novelis
 This acquisition of Novelis by Hindalco established the latter as
a global integrated aluminium producer with low-cost alumina
and aluminium production facilities combined with high -end
aluminium rolled product capabilities. Hindalco emerged as the
leading rolled aluminium products maker and the fifth -largest
integrated aluminium manufacturer in the world. Acquiring
Novelis also provided Hindalco ready access to its existing
customers such as General Motors Corp., Aston Martin, Coca-
Cola Co., etc.
 Novelis gave Hindalco an entry into the down-stream value
addition business of rolled aluminium products. Earlier,
Hindalco was limited to the upstream business of mining bauxite
and converting it into alumina, and then smelting it into
aluminium. Also, Novelis had built a unique fusion technology
that helped in increasing the formability of aluminium and
products like sheet metal. The low weight –to-strength ratio had
many applications in the auto industry, which was now
advantageous to Hindalco.
 About 35 mT of aluminium was consumed in 2006. About 40% of
this was rolled aluminium products, where Hindalco had no
presence. However, Novelis had a 19% world share, which was
now acquired by Hindalco. It would have costed Hindalco US
$12 billion to build assets that match Novelis’ s 29 plants in 4
continents with current production of 3.3 mT in 10 years, if
Hindalco had taken the organic growth route.
 Thus Novelis acquisition helped Hindalco gain quick access to
new technologies and large production capacities without
having made the efforts towards time-consuming R&D.

8.  Novelis profitability was significantly affected by the inability to
pass through metal price increases due to metal price ceilings in
certain of the company’s sales contracts till 2009. But by
January 2010, all the sales contracts got expired and profitability
will increase substantially from then onwards, due to new
contracts
 The debt component of Novelis stood at US $2.4 billion and
additional US $2.8 billion was taken by Hindalco to finance the
deal. This will put tremendous pressure on profitability due to
high interest burden, in light of Hindalco’s expansion plans
consisting of various Brownfield & Greenfield projects costing
Rs. 25,000 crore.
0
5
10
15
20
25
30
2006-07 2007-08 2008-09 2009-10
D/E Ratio
EPS
ROE
Current Ratio

9. Post-Acquisition Performance of Novelis
-160
-140
-120
-100
-80
-60
-40
-20
0
20
40
2006-07 2007-08 2008-09 2009-10
D/E Ratio
ROE
Current Ratio

10. CHALLENGES FACED POST-MERGER
• Higher input and operational cost summing up to $48 million increase
in cost
• Increase in energy, freight and alloy costs
• Exchange rate mismatch
• Higher tax expenses
• Profits declined by 10.8%
• Fall in the share prices
Acquisition for future prospective
o Take the advantage of new technology
o Entry into the world market
o Try to reduce the competition from market
o Increase the economics of scale
o Access the new customer

11. Conclusion
Acquisition of Novelis by Hindalco, we understanding the all the things we
can conclude that the acquisition made by Hindalco lead to a good deal
because of this merger Hindalco get good profit as well as reducing the
competition by enter into a merger with Novelis. While we talk about the
Novelis, it could lead to them to good amount for their shareholders as well
as it increase its credibility. So ultimately this merger was lead to a good
result for the both the companies.
This acquisition is show India 3rd
biggest merger and acquisition. This
Deal is good in point of both company due to this deal hindalco is getting
opportunity to grape the word market and reduce the competition from
market this deal are is also good in point of Indian economics because due
to these India try to maximum export the aluminum product to the different
country and make surplus in balance of payment
We simply conclude that these acquisition are right decision by both of the
company because this are increase the profitability of hindalco and there
are also to be the provide the good market price to the shareholder of
novelis company.