The deal includes the assumption of $2.4 billion worth of debt, of which $1 billion is term debt and the balance is high-yield loans. Novelis equity shareholders will receive $44.93 per share. The board of Novelis is unanimously recommending the deal to shareholders and believes it ôdelivers outstanding value to Novelis shareholdersö.
To guard against a competing bid, a $100 million break-fee is payable to Hindalco in the event the deal is derailed. Further, as per terms agreed, 66.66% of Novelis shareholders present and voting must tender their shares for Hindalco to proceed with the deal and squeeze-out the remaining minority shareholders.
Novelis was created in 2004 when Canadian Alcan spun off the ferroalloy division it acquired when it bought Pechiney. It has a global market share of about 19% in aluminium rolled products and aluminium can recycling, and supplies aluminium sheet and foil to the automotive and transportation, beverage, food packaging, construction, industrial and printing markets.
Hindalco is a low-cost producer of primary aluminium. The deal represents a forward integration play for Hindalco which operates aluminium and copper smelters, a move most analysts viewed favourably. However, analysts commented that the benefits of acquiring the currently loss-making Novelis would take time to kick in.
Novelis had confirmed to investors in January that it was in potential takeover discussions and its share had spiked 24% that day from $30.38 to $37.53. It closed on Friday at $38.54.
As was the case with Tata Steel and Corus, HindalcoÆs target is, in revenue terms, a multiple of its size and catapults it into a different league. For the last fiscal year (ended March 31, 2006) Hindalco had revenues of $2.6 billion and Novelis had revenues of $8.4 billion (for calendar 2005).
Investors have reacted negatively to the increased leverage on HindalcoÆs balance sheet, and the potential integration issues attendant with a company the size of Novelis. Hindalco shares lost 14% on the NSE to hit Rs149 ($3.39), just 7% shy of its 52-week low of Rs138.
UBS was the financial adviser to Hindalco.
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