Hindalco's Acquisition of Novelis
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Case Details:
Case Code : BSTR265
Case Length : 17 Pages
Period : 1991 - 2007
Pub Date : 2007
Teaching Note :Not Available
Organization : Hindalco, Novelis
Industry : Aluminum
Countries : US, Canada
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Introduction Contd...
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The company operated in 11 countries and supplied high quality aluminum sheet
and foil products to various industries including automotive, transportation,
packaging, construction, industrial products, and printing. Novelis'customers
included companies like Coca-Cola, Kodak, Ford, General Motors, and other
leading Fortune 500 companies. Novelis sold rolled aluminum products in Asia,
Europe, North America, and South America (Refer to Exhibit III for performance
of Novelis in different regions).
Industry analysts opined that the acquisition would benefit Hindalco by
strengthening the company's global presence, as Novelis had flat rolled aluminum
manufacturing plants in different locations in the world.
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They considered the deal a good platform for Hindalco to
access global customers. Novelis had a 19 percent global market share in foil
products, 25 percent in construction and industrial products, and 43 percent in
beverage cans.
After the acquisition, the merged entity would emerge as the world's largest
aluminum rolling company and among the world's top five aluminum manufacturers.
According to Shivanshu Mehta, Assistant Vice-President, NCDEX, "The deal will
catapult Hindalco's flat rolled product capacity from 0.2 million ton to 3.2
million ton per annum and elevate the company to a leadership position in the
business."5
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Some analysts, however, were of the view that the
deal was not beneficial to Hindalco as it had paid a huge amount in cash
to acquire a company which was recording losses. Novelis had incurred a
loss of US$ 275 million for the year 2006.
Even in the year 2005, when Novelis had reported US$ 90 million as net
profit, its share price did not cross US$ 30 (Refer to Exhibit IV for
Novelis and Hindalco stock charts).
The analysts pointed out that the way the deal was financed would affect
Hindalco's financial performance as the acquisition would not add value
in the short and medium term. |
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