The Hindu Business Line : Birlas see synergy in flat products segment

Unlike the Tata-Corus deal, the Aditya Birla group's takeover of aluminium producer Novelis did not have the trappings of a tense bidding battle. There were other suitors for Novelis too, but the Birlas were neither aware of the number of bidders or their bids. But at the end of the day, the Birlas carried forward India's march towards becoming a global player, in yet another significant overseas acquisition by an Indian company.

In one stroke, the Aditya Birla group's Hindalco, which offered $6 billion for Novelis, is poised to become an integrated global aluminium major and double its turnover to about $20 billion.

"The combination of Hindalco and Novelis will establish a global integrated aluminium producer with low-cost alumina and aluminium production facilities, combined with high-end aluminium rolled product capabilities," Mr Kumar Mangalam Birla, Chairman of the Group, said.

The Birlas had to pay a 15 per cent premium for Novelis, but the company says it is a "reasonable" one for an acquisition of this nature. "The replacement value of Novelis' assets is estimated at $12 billion. And it would take 10 years to develop similar assets. The Novelis acquisition will give us immediate scale and a global footprint," Mr Debu Bhattacharya, Managing Director of Hindalco, said. The company is confident that the acquisition is not going to impact Hindalco's own greenfield and brownfield expansion programme.

Downstream capabilities

What led Hindalco to go in for the overseas acquisition? Hindalco has a strong presence in the upstream part of the aluminium business and has been looking at consolidating its foothold in the downstream or value-added part of the business. "For the downstream business, we wanted technology and market proximity. That is where Novelis comes in. With 36 manufacturing units across the globe, Novelis is the largest producer of aluminum flat rolled products in the world. It produces and sells more than three million tonnes of flat rolled products. With Novelis, we can now add value to the aluminium we produce," Mr Bhattacharya said.

Novelis was born after the de-merger of Alcan's rolled products business in 2005. It sold 19 per cent of flat rolled products in the world, with these products constituting about 38-40 per cent of the total aluminium products. The acquisition is expected to produce the synergy that Birlas were looking for in the flat products segment. India is expected to consume one million tonnes of flat rolled products in a few years time.

Birlas are aware of the possibility of a rival bid being made for Novelis till the transaction is completed. "But we have put a hurdle in the way of anyone trying to put a rival bid at this stage. If somebody comes after us, he will have to pay us $100 million as break fee," Mr Bhattacharya said.

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