Hindalco Novelis Acquisition

[pic 1][pic 2][pic 3][pic 4][pic 5]

[pic 7][pic 6]

Introduction

Mergers and Acquisitions has been the way forward for companies to grow inorganically worldwide. After 1991, it has been the preferred way of growth for Indian companies too. We have seen many acquisitions in the metals industry like the acquisition of Arcelor by Mittal, Corus by Tata etc. Indian aluminium behemoth Hindalco furthered this process by acquiring Novelis Inc, a world leader in flat-rolled aluminium products and aluminium rolling. The reason Hindalco Industries Ltd. acquired Novelis Inc. was to gain sheet mills that could supply car companies and can makers.

From the strategic view-point, the acquisition of Novelis makes Hindalco the leader in downstream aluminium rolled products on the global stage. This acquisition is perfect for both the parties. Novelis processes primary aluminium to make them into downstream high value-added products and Hindalco manufactures the same. This makes it a perfect marriage fit.

As of now, Hindalco focuses primarily on manufacturing alumina as well as primary aluminium. Alongside this, it has downstream rolling, extruding and foil making capacities but they are not of global standards. Novelis processes nearly 3 million tonnes of aluminium in a year and has sales hubs all across the globe. To put this in better perspective, it has a 19% market share globally in the flat rolled products segment and thus it is the leader in that segment. Hindalco completed this acquisition through its wholly-owned subsidiary AV Metals Inc. It acquired 75.415 common shares of Novelis, representing 100 percent of the issued and outstanding common shares. AV Metals Inc then went on to transfer the common Novelis shares to its wholly-owned subsidiary AV Aluminium Inc. Hindalco became the world's biggest aluminium rolling company and one of the largest producers of primary aluminium in Asia and India's foremost copper producer, all thanks to this deal. Novelis will operate as a subsidiary of Hindalco under an agreement of this acquisition deal.

Aluminium Industry Globally

The aluminium industry now is very different from what it was forty years ago. More than 40% of the world’s bauxite production is accounted for by BRIC economies (Brazil, Russia, India, China) while the alumina output has shifted towards bauxite-rich countries (Guinea, Australia, Vietnam, Brazil, India) and away from industrialized economies. Due to the continuous increase in energy prices and in some cases due to government industrial policies, primary production has moved from regions such as the United States, Japan and most West European countries towards China, Russia, Canada, Brazil, Australia, the Middle-East, and now India and some parts of South East Asia. The world’s major producer of aluminum in 2012 was China (45% of the total). The Commonwealth of Independent States (CIS) (10%), Europe (9%) and North America (10%) traditionally remain important production areas. Regions such as the Middle East and India are emerging as important producers of primary aluminium.