Hindalco acquired Novelis, a global aluminum company, in 2007 for $6 billion. This made Hindalco the world's largest aluminum rolling company. The acquisition allowed Hindalco to gain access to Novelis' large international contracts and sophisticated technology. It also expanded Hindalco's global footprint to 11 countries. While the deal increased Hindalco's revenues and market share significantly, it also increased debt levels and exposed Hindalco to currency exchange rate risks. However, Hindalco overcame integration challenges by maintaining Novelis' existing management system and implementing processes to improve supply chain management and risk processes.
corporate strategy
Newell started as Curtain rod manufacturer in 1902
1917 – Supplier to Woolworth stores
1921 – Leonard Ferguson at Newell, Owner in 1937
1950 – Dan Ferguson (son of Leonard and Stanford MBA) as CEO. Revenue 10 mln
1967 – First Strategy for Newell – Focus as market for hardware and do-it-yourself products to volume merchandisers
1969 – First non-drapery hardware acquisition
1972 - Public Company – Funding for new products by acquisition
Two-Pronged Strategy
Manufacture low-technology, nonseasonal, noncyclical, nonfaschionable products for volume retailers by acquisition and then streamlining, focussing and making the division profitable, increasing operating margins > 15%
Strategy for consolidation and centralization to achieve effectivess
Changed strategy for individual divisions responsible for manufacturing and marketing but was centrally controlled by admin, legal and treasury systems
1997 – Revenues of 3.23 billion. Clients like Walmart which gave 15% of business, top 10 clients accounting for 40% business
Through 1997, 10 year average return to investors 31% (Vs S&P 500 only 18%)
corporate strategy
Newell started as Curtain rod manufacturer in 1902
1917 – Supplier to Woolworth stores
1921 – Leonard Ferguson at Newell, Owner in 1937
1950 – Dan Ferguson (son of Leonard and Stanford MBA) as CEO. Revenue 10 mln
1967 – First Strategy for Newell – Focus as market for hardware and do-it-yourself products to volume merchandisers
1969 – First non-drapery hardware acquisition
1972 - Public Company – Funding for new products by acquisition
Two-Pronged Strategy
Manufacture low-technology, nonseasonal, noncyclical, nonfaschionable products for volume retailers by acquisition and then streamlining, focussing and making the division profitable, increasing operating margins > 15%
Strategy for consolidation and centralization to achieve effectivess
Changed strategy for individual divisions responsible for manufacturing and marketing but was centrally controlled by admin, legal and treasury systems
1997 – Revenues of 3.23 billion. Clients like Walmart which gave 15% of business, top 10 clients accounting for 40% business
Through 1997, 10 year average return to investors 31% (Vs S&P 500 only 18%)
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• Analysis of new consumer electronic applications: smart watches, camera lens and fingerprint reader covers and display cover
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• Detailed analysis of sapphire use for: LED, SOS, Camera lens & fingerprint reader covers, smart watches, display covers.
• Volume & revenue through 2019 for all applications
• Supply / demand, company revenue & capacity rankings
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• PSS supply chain and manufacturing
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R&R and Tetra Engineering Group Inc. were asked to solve the issue with reduced steam production.
An inspection had shown that a significant amount of hot flue gas was bypassing the boiler tubes, where the heat was supposed to be transferred.
R&R Consult conducted a CFD analysis, which revealed that 6.3% of the flue gas was bypassing the boiler tubes without transferring heat. The analysis also showed that the flue gas was instead being directed along the sides of the boiler and between the modules that were supposed to capture the heat. This was the cause of the reduced performance.
Based on our results, Tetra Engineering installed covering plates to reduce the bypass flow. This improved the boiler's performance and increased electricity production.
It is always satisfying when we can help solve complex challenges like this. Do your systems also need a check-up or optimization? Give us a call!
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Explore the innovative world of trenchless pipe repair with our comprehensive guide, "The Benefits and Techniques of Trenchless Pipe Repair." This document delves into the modern methods of repairing underground pipes without the need for extensive excavation, highlighting the numerous advantages and the latest techniques used in the industry.
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2. AGENDA
Introduction
The Deal
Motivation behind it
Benefits
Challenges faced
Current status
Questions & Answers
3. Introduction: Company Profile
NOVELIS
• Global aluminum co. headquartered in Atlanta formed in 2005
• By 2007, it became the world leader in aluminum rolling
• Its operations extend in 11 countries with over 12,700 employees
• Focus was on helping the customers perform and transforming new ideas
into practical product solutions
• Vision was to make the world a lighter, brighter and better place
• World leader in the recycling of used aluminum beverage cans
4. HINDALCO
• Hindustan Aluminum Company is one of the largest aluminum manufacturers
in the world
• Incorporated into the Aditya Birla Group in 1958
• Headquartered in Mumbai
• Annual sales of US$ 15 billion and employs around 20,000 people
• Chairman: Kumar Mangalam Birla
• On 11 February 2007, the company entered into an agreement to acquire
the Canadian company Novelis for US$6 billion
• The combined entity is the world's largest rolled-aluminum producer
5. HINDALCO’S ACQUISITIONS
1999
74.6% stake in
INDAL
2002
Indo Gulf
Corporation’s
copper business
2003
Nifty Copper
Mine
2004
INDAL merged
with HINDALCO
2006
JV with Almex
USA
2006
JV with Essar
7. Motivation Behind the Deal
HINDALCO
• Followed an acquisition-led strategy
along with forward & backward
integration
• Wanted to increase its global presence
• To strengthen its downstream
capabilities
• To fetch economies of scale
• To leg-up its technology
• To fetch the contracts of Novelis
NOVELIS
• It was the world leader in aluminum rolling
• It was the supplier of the highest quality
aluminum sheet and foils
• World leader in recycling aluminum cans
• Yet it was incurring losses
• Unable to implement the escalation clause
(fixed-price contracts)
• The output of HINDALCO was the input of
Novelis; aluminum acting as a link
• To implement its vision effectively
8. The DEAL (MAY-2007)
• It was an all-cash transaction valued at $6 billion ($2.4billion of debt)
The deal consisted of 2 parts:
1. HINDALCO bought 100% of Novelis’ equity at $44.93 per share
(US$3.6.bn)
• It borrowed $2.85 bn (interest expense of INR 800 cr)
• $300 mn was raised from Essel Mining (Aditya Birla Group)
• $450 mn from their cash reserves
2. $2.4 bn debt on Novelis’ balance sheet had to be cleared by HINDALCO
through refinancing
9. Key Benefits
Technical & administrative economies of
scale
Concentric benefits
Reduction of uncertainty
Improvement in quality
Price discrimination through vertical
integration
10. Key Challenges
• Quick completion: Approvals from government agencies, company
boards, lenders and courts
• Integration: Integration of companies with diverse cultures,
nationalities across various levels and functions
• Retaining cutting edge: Spirit and capability of innovation, key
customer relationships, people skills to be expanded across greater
HINDALCO
• Identifying and realising synergies: IT and risk management skills,
jointly realizing downstream vision, and international marketing
• Improving Novelis’ financial performance: focus on costs,
operations, pricing and working capital
11. Other Foreseen Challenges
• This acquisition would expose HINDALCO to weaker balance sheet
• Along with the tripling of revenues, the debt would also pile up for
HINDALCO which would erode its profitability
• Adverse changes in currency exchange rates could negatively affect the
financial results
• Due to its highly leveraged position, HINDALCO’s future expansion plans
may get affected
12. CURRENT SCENARIO
• HINDALCO has gained access to the aluminum market globally
• It gained access to Novelis’ sophisticated technology which would have taken 10
years to come up with
• An industry leader in aluminium and copper
• It is a metals powerhouse present in two of the fastest growing metal segments:
aluminium and copper, with
• It has global footprints in 13 countries and with a consolidated turnover of USD
14.8 billion (Rs. 80,193 crore)
• As on 30 June 2013, the promoters Aditya Birla Group held around 32% equity
shares in Hindalco
Source: www.hindalco.com, wikipedia
14. Was the merger a good decision?
This merger was a good decision as by doing so, it could reap the following benefits:
• It gained access to large international contracts because of Novelis’ credibility and brand
value.
• It reaped the benefits of the economies of scale by reduction of cost and time spent in
procuring raw materials
• It could increase in size and market share by spreading its global footprint in 12 countries
• It became the 5th largest aluminum manufacturer and the biggest rolled aluminum
products maker in the world
• It could now be protected from the risks of fluctuations in aluminum prices on the LME
(London Metal Exchange)
• Access to sophisticated technology leading to high quality of final products
• Vertical integration enabled the entity to get high prices for its products
• It could save a considerable amount on overheads
15. VALUE ADDITION
NOVELIS
• It reported a net income of USD 25 million
for the first quarter of 2009
• It reported a pre-tax income of $62 million
on sales of $3,103 million for the same
period
• Thus, it indicated an improvement of $176
million in the pre-tax income for the next
year
• Reduction in $15 million in selling, general
expenses
• Interest expense lowered by $11 million
• Product mix improvements
HINDALCO
• Its net sales increased by 213%
• Access to advanced technology
• Increased global footprint
• Benefits of vertical integration
• Increased clientele
• Broader market segment to cater to
• Increase in shareholder’s value
16. Major
Changes in the
Stock Market
Stock prices fall just after the
deal announcement
Gradual rise in price after deal
completion
Fall in stock price after rights
issue was announced in June
HINDALCO
17. Overall
Changes
• Very strong cash flow performance
• Substantial operating improvements
• Novelis Fusion global footprint
• Solid progress on risk management
• Improvements in pricing and
portfolio
• Reduction in price ceilings
• Reduction in corporate costs
18. 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
19. How did they overcome the challenges?
• Existing management system was not disturbed
• After six months of acquisition, HINDALCO sent deputed just 2 of its own
executives to Novelis:
1. To institutionalize a risk-management process
2. To improve its global supply chain in the logistics department
• No lay-offs happened while hiring was on hold
• Plain and simple techniques were used to manage the business
• It set up an IT company for Novelis due to the dearth of inexpensive
engineers
• It set a target of 7-12 stock turn s a year for Novelis by 2010
• This could free $300 million in working capital
Source: External Research