Birla buys Novelis for $6 bn

Hindalco’s acquisition follows Tata Steel’s $12 billion purchase last month of Corus Group Plc, the biggest British steelmaker, outbidding CSN of Brazil. Suzlon Energy Ltd, the leader in wind turbines, last week offered $1.3 billion for German rival Repower Systems AG, countering an offer from French nuclear-reactor maker Areva SA.

Birla said Hindalco will seek at least 66.66 per cent of votes from Novelis stockholders. Any new bidder for Novelis will be required to pay at least $100 million as a so-called “break-fee”, Hindalco MD Debu Bhattacharya said at a press conference.

On the financing of the takeover, he said Hindalco plans to raise $2.8 billion of debt through a special purpose entity and use $450 million of the company’s own cash. “The company will also borrow $300 million from a group company. The rest will be raised by Novelis,” he said.

When asked whether Hindalco is paying a higher price, Birla said, “When you are acquiring a world leader you will have to pay a premium. This is something reasonable.”

Alcan, the world’s second-largest aluminum producer after Alcoa Inc, spun off Novelis to satisfy antitrust concerns after acquiring France’s Pechiney SA for about $4 billion in February 2004. In January 2005, Novelis agreed to sell about $1.4 billion in bonds as part of a $2.9 billion refinancing needed to repay loans from Alcan.

Novelis has capacity to produce 3 million tonnes of flat- rolled products, while Hindalco has 220,000 tonnes. “This acquisition not only gives us access to higher-end products but also to superior technology,” he said.

Novelis reported a loss of $102 million, or $1.38 a share, in the third quarter. A year earlier, net income was $10 million, or 14 cents a share. In 2005, the company reported net sales of $8.4 billion. Birla is optimistic about the future outlook. “The combination of Hindalco and Novelis will establish a global integrated aluminum producer with low-cost alumina and aluminum production facilities combined with high-end aluminum rolled product capabilities,” he said.

Novelis is the global leader in aluminum rolled products and aluminum can recycling, with a global market share of about 19 per cent. Hindalco has a 60 per cent share in the currently small but potentially high-growth Indian market for rolled products.

Said Birla, “The transaction has been unanimously approved by the boards of directors of both companies.” The closing of the transaction is not conditional on Hindalco obtaining financing. The transaction will be completed by way of a plan of arrangement under applicable Canadian Law. It will require the approval of over 66 per cent of the votes cast by shareholders of Novelis Inc at a special meeting to be called to consider the arrangement followed by Court approval.

Shares of Novelis have doubled since January 25 on speculation the company may receive a takeover offer after several weeks of talks with potential acquirers. Following the transaction, Hindalco, with Novelis, will be the world’s largest aluminum rolling company, one of the biggest producers of primary aluminum in Asia, and India’s leading copper producer.

ANOTHER MEGA TAKEOVER

• Takeover is second largest after Tata-Corus deal

• The offer of $44.93 a share represents a premium of 17%

• Deal includes $2.4 bn debt of Novelis

• Hindalco to raise $2.8 bn debt through SPV

• Hindalco to become largest aluminium rolling company