Hindalco - Novelis Acquisition: Creating an Aluminium Global Giant

Indian Companies as a part of their growth strategy have done a series of takeovers globally. In this chain on February 10, 2007, Indian aluminium giant Hindalco entered into an agreement with Novelis to acquire the company in an all-cash transaction which valued Novelis at approximately $6.0 billion, including debt. Hindalco, through its wholly-owned subsidiary AV Metals Inc, acquired 75.415 million common shares of Novelis, representing 100 per cent of the issued and outstanding common shares. AV Metals Inc transferred the common shares of Novelis to its wholly-owned subsidiary AV aluminium Inc. The transaction makes Hindalco the world's largest aluminium rolling company and one of the biggest producers of primary aluminium in Asia, as well as being India's leading copper producer. The combination of Hindalco and Novelis establishes an integrated producer with low-cost alumina and aluminium facilities combined with high-end rolling capabilities and gives it a global footprint. Hindalco's rationale for the acquisition is increasing scale of operation, entry into high-end market and enhancing global presence. Novelis is the global leader (in terms of volume) in rolled products with annual production capacity of 2.8 million tonnes and a market share of 19 per cent. The acquisition will expose Hindalco to weaker balance sheet. Besides the company will move from high margin metal business to low-margin downstream products business. The acquisition will more than triple Hindalco's revenues, but will increase the debt and erode its profitability. The case study attempts to analyze the financial and strategic implications of this acquisition for the shareholders of Hindalco. It explains the acquisition in detail and highlights the benefits of the deal for both the companies. Some of the main issues the case tries to discuss and raise are: strategic rationale for this acquisition, emerging financial challenges in this acquisition, potential risk to Hindalco from this acquisition and whether the valuation for this acquisition was correct.