India's Hindalco to Buy Metal-Products Maker Novelis (Update4)

Feb. 11 (Bloomberg) -- Hindalco Industries Ltd., India's biggest aluminum producer, agreed to acquire Novelis Inc. of Atlanta for more than $3.4 billion in cash to gain sheet mills that supply can makers and car companies.

Hindalco will assume $2.4 billion of Novelis' debt and will complete the deal in the second quarter, Chairman Kumar Mangalam Birla said at a press conference today in Mumbai. Novelis board members said they support Hindalco's offer of $44.93 a share, a 17 percent premium to the stock's Feb. 9 closing price.

Acquiring Novelis will provide Aditya Birla Group's Hindalco with access to customers such as General Motors Corp. and Coca-Cola Co. Indian companies, fueled by accelerating domestic growth, are seeking acquisitions overseas to add production capacity and find markets for their products. Tata Steel Ltd. spent $12 billion last month to buy U.K. steelmaker Corus Group Plc.

``The trend for Indian companies now is to look westwards, acquire companies and establish themselves as multinational companies,'' J. Venkatesan, who oversees $1.5 billion of Indian assets at Sundaram BNP Paribas Asset Management Co. in Chennai, said before the announcement. ``Investors will want to know what kind of benefits will accrue to Hindalco in the long run.''

Shares of Novelis have doubled since Jan. 25 on speculation the unprofitable company may receive a takeover offer. Novelis fell 2.5 percent to C$45.07 a share on Feb. 9 on the Toronto Stock Exchange. Mumbai-based Hindalco Industries, almost unchanged this year, fell 1 percent to 173.25 rupees on the Bombay Stock Exchange on Feb. 9.

Votes

Hindalco will seek at least 66.66 percent of votes from Novelis stockholders, Birla said. Any new bidder for Novelis will be required to pay at least $100 million as a breakup fee, Hindalco Managing Director Debu Bhattacharya said at the press conference.

Hindalco plans to raise $2.8 billion of debt through a so-called special purpose entity and use $450 million of its own cash. The company will also borrow $300 million from a group company. The rest will be raised by Novelis, he said.

``When you are acquiring a world leader you will have to pay a premium,'' Birla said. ``This is something reasonable.''

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

Ford, Kodak

Novelis, which was spun off from Alcan Inc., controls 19 percent of the world's flat-rolled aluminum products, according to its Web site, and also supplies companies including Ford Motor Co., Eastman Kodak Co. and ThyssenKrupp AG.

Novelis, which about 76.5 million shares outstanding, had a market value of C$3.34 billion ($2.8 billion) at the close of trading on Feb. 9. On Nov. 14 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.

Edward A. Blechschmidt has been acting chief executive officer at Novelis since Jan. 2. The company had been searching for a permanent replacement since ousting Brian W. Sturgell in August after a jump in metal prices led to losses.

Blechschmidt, a board member, succeeded Chairman William T. Monahan, who had been interim CEO since the ouster of Sturgell, an executive vice president at Alcan when he was named in 2004 as Novelis CEO.

Soaring demand from China drove aluminum prices to a record $3,310 a ton on the London Metal Exchange in May last year. The prices have gained 31 percent in the past year.

Saving Time, Money

Hindalco would have required at least 10 years and $12 billion to build the Novelis assets, Birla said.

Hindalco does not plan to sell shares to fund the Novelis purchase, he said. The company, which exports 16 percent of its aluminum, is one of the world's lowest-cost producers of the metal. Hindalco will gain access to markets across the globe because Novelis operates in 11 countries and is the second-largest producer in North America, according to its Web site.

``This is a very good move from Hindalco,'' said Arvind Desai, head of research at Mumbai-based Niche Brokerage Pvt. ``Hindalco will be able to ship primary aluminum from India and make value-added products.''

Hindalco plans to triple aluminum output to 1.5 million metric tons by 2012 to become one of the world's five largest producers. The company, which also has interests in telecommunications, cement, metals, textiles and financial services, is the world's 13th-largest aluminum maker.

Higher Rating

Acquisitions for Indian companies are becoming easier with the nation's increased debt rating.

Standard & Poor's on Jan. 30 raised India's rating to investment grade as growth in Asia's fourth-largest economy is likely to expand at a record pace of 9.2 percent in the year to March 31. Credit Suisse in December forecast India's economy will grow 10 percent this year from 9.5 percent in 2006, overtaking China as the world's fastest-growing major economy.

Suzlon Energy Ltd., India's biggest builder of wind turbines, on Feb. 9 offered 1.02 billion euros ($1.3 billion) for German rival Repower Systems AG, countering an offer from French nuclear-reactor maker Areva SA.

Alcan, the world's 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.

To contact the reporter on this story: Debarati Roy in Mumbai at droy5@bloomberg.net;

To contact the editor responsible for this story: Mike Millard in Singapore at mmillard2@bloomberg.net; James Poole at jpoole4@bloomberg.net.