1. Merger & Acquisition (Hindalco & Novelis) Presented by: Anand Mishra Jeewan Das Mohta Sansad Panigrahi Siddhartha Anand Sumit Kamra

2. We look upon the aluminum business as a core business that has enormous growth potential in revenues and earnings,' 'Our vision is to be a premium metals major, global in size and reach .... The acquisition of Novelis is a step in this direction -Kumar Mangalam Birla, Chairman, Hindalco Industries Hindalco Novelis http://www.slideshare.net/gagan3211/merger-acquisition-hindalco-novelis

3. Introduction

5. Electricity, coal and furnace-oil are primary energy inputs.

6. Energy cost is 40% of manufacturing cost for metal and 30% for rolled products.

7. High cost of technology is the main barrier in achieving high energy efficiency.

8. Energy conservation and reduced consumption is main motive.

9. Increased competition from imports of aluminum.Indian Aluminum Industry

11. Commenced its operations in 1962 and today it has grown to become the country’s largest integrated aluminum producer.

12. Annual revenue of US $14 billion. market capitalization in excess of US $ 23 billion.

13. The aluminum division's product range includes alumina chemicals, primary aluminum ingots, and billets, wire rods, rolled products, extrusions, foils and alloy.

14. The company reduced has SG&A costs from 4.15% to 2.96% and led to a bottom line growth from 15.8B to 26.9BHindalco

16. The 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.

17. World leader in aluminium rolling - producing an estimated 19 percent of the world's flat-rolled aluminium products.

19. STRATEGIC FIT

21. Aluminium : Integrated Operations

22. Copper : Partial Integration

23. Aluminium

24. Build low cost upstream

25. Buy High end downstream

26. Global presence

27. Copper

28. World class operations

29. Reduced volatilityHindalco Strategy

31. Wrong management decision led to losses of $350 million (in 2006).

32. Inefficiency of the management and finance team.

33. Novelis ended up inheriting a debt mountain of almost $2.9 billion on a capital base of less than $500 millionStrategic Perspective : Novelis

35. Novelis had a capacity to produce 3 million tonne while Hindalco has a capacity of 2,20,000 tonne.

36. It would have taken a minimum of 8-10 years for Hindalco for building these facilities.

37. Hindalco got the fusion technology of Novelis which increased the formability of aluminium.

38. As per company details, the replacement value of the Novelis was $12 billion, so considering the time required and replacement value; the deal was worth for Hindalco.

39. The immediate effect of the merger is that Hindalco would achieve its target of doubling its turnover to $ 20 billion three years in advance Rationale for Acquisition

40. Future Outlook http://www.iitk.ac.in/infocell/announce/convention/papers/Colloquium-04-Aman%20Srivastava,Rakesh%20Gupta%20final.pdf

41. Post deal analysis

43. He has been proved right three years hence.

44. Novelis expects transport and electronics sectors to be global demand drivers and clock 20-25 per cent growth in 2011, as developed markets revive.

45. Rolled product shipments are up eight per cent year-on-year (y-o-y) in North America due to growth in can, automotive and industrial products.

46. Europe has seen y-o-y volume growth of 10 per cent. Post Deal analysis http://www.hindalco.com/investors/downloads/Hindalco_Annual_Report_Notice2011%20.pdf

49. Disruption in production due to external factors.T O http://hindalcoindustrieslimited.blogspot.com/2010/12/swot-analysis-of-hindalco.html

50. Post Deal analysis http://www.moneycontrol.com/india/stockpricequote/aluminium/hindalcoindustries/HI

51. FINACIAL FIT http://www.iitk.ac.in/infocell/announce/convention/papers/Colloquium-04-Aman%20Srivastava,Rakesh%20Gupta%20final.pdf

55. Debt to Equity Ratio almost Zero

56. 55% increase in net profit from 2006 to 2007

57. Net profit of 25,643 crore as per 2007 balance sheet.Hindalco Financial – pre acquisition

59. If the 66.66% approval was not obtained, Birla had the right to walk away from the deal

60. Hindalco made the Novelis board sign a $100- million break fee, the price Novelis had to pay if it finds another buyer.

61. There was also a clause of ‘new buyer premium ’of a $5dollars a share’ over the 44.93$ per price- only at that price could Novelis entertain a fresh rival bid..Rules of the deal

63. Hindalco personally contributed US $450 million

64. Aditya Birla group company Essel Mining contributed US $300 million

65. US $455mn through liquidation of investments

66. Hindalco paid $44.93 in cash for each outstanding common share of Novelis, around 15% premium to the market price

67. Hindalco planned to replace existing $2.4bn loan by term loan of US $1bn and high yield bonds of US $1.4bn

69. 2008: $1-billion loan was taken on Hindalco’s books, and the banks that participated in the exercise included ABN Amro, Barclays Capital, Bank of Tokyo-Mitsubishi UFJ, Calyon, Citigroup, Deutsche Bank, HSBC, Mizuho Financial and Sumitomo Mitsui Financial.

70. 2009:Hindalco took a syndicated loan of $982 million (Rs 4,910 crore at current rate) from 11 foreign banks to repay the bridge loan taken two years ago for the Novelis acquisition. Banks involved

72. Novelis indicated pretax profit of $30-100 million in 2007.

73. Price paid translates to market capitalization /PBT multiple of 36 on Novelis’s 2007 forecast

74. Hindalco paid 11.4x EBITDA, 20.7x EBIT or 53.4x PE.

75. At a total enterprise value of US $ 6 billion. Novelis was nearly 50% larger than Hindalco’s current market capitalization.

76. At Novelis long term annual free cash flow target of US $400m (using a real WACC of 9%), it was estimated that acquisition would destroy value by INR60/share.

77. Hindalco would need to improve annual free cash flow by 35% to US $540m for the acquisition to be value (NPV) neutral.Valuation for acquisition

79. Company was moving from high margin metal business to low margin.

80. Acquisition was going to increase revenue but was going to increase debt burden and erode profitabilityFinancial Challenges

82. Adverse changes in currency exchange rates or aluminium prices could negatively affect the financial results and competitiveness of company’s aluminium rolled products relative to other materials

83. The end-use markets for certain products of Novelis products were highly competitive and customers are willing to accept substitutes for the company productsRisk Factors

84. CULTURAL FIT

86. Guidelines of SEBI & SEC were met.

87. Plan to optimize tax bills of both countries.

88. Sharing best practices.Financial Integration

90. In the first six months after the take over Hindalco deputed just two of its own executives to Novelis: it sent an expert from its copper division to institutionalize a risk-management process and installed a senior executive in Novelis ’logistics department to help improve its global supply chain

91. No Layoffs ,however hiring activities were kept on hold for sometime.Organisational Integration

93. It set up a company to manage IT functions of Novelis due to availability of inexpensive engineers.

94. Hindalco had set Novelis a target of seven to 12 stock turns per year by 2010,which could free around $300 million in working capitalBusiness Process Integration

96. Half of the increase would be for the kind of flat-rolled products Novelis produces. Thus, India could absorb a third of the North American company’s output in three years’ timeMarket Integration

97. Similar deals

99. On 20 October 2006 the board of directors of Anglo-Dutch steelmaker Corus accepted a $7.6 billion takeover bid from Tata Steel, the Indian steel company.

100. Tata Steel purchased a 100% stake in the Corus Group at 608 pence per share in an all cash deal, cumulatively valued at USD 12.04 Billion.

101. The deal is the largest Indian takeover of a foreign company and made Tata Steel the world's fifth-largest steel group.

102. The United Company

103. Formed by the merger of RUSAL, SUAL, and the alumina assets of Glencore, completed in March 2007.

104. The combined company became the world’s biggest aluminum maker, worth $25-30 billonSimilar deals in industry

105. SEBI Norms

107. The minimum number of shares for which the offer is to be made

108. The minimum price at which the shares must be Acquired

109. In the event the public shareholding in the Indian Company falls below the specified 10%, then

110. The acquirer has to make an offer to buy out the outstanding shares remaining with the shareholders, resulting in de-listing of the Company, or for delisting the company process prescribed under delisting guidelines needs to be followed .

111. The acquirer has to divest, through an offer for sale or by a fresh issue of capital to the public, to keep the public holding at the prescribed levels and prevent a delistingSEBI Guidelines (Takeover code)

112. THANK YOU