Hindalco paid $12/share more than nearest rival for Novelis

MUMBAI: Hindalco Industries paid a whopping $12 per share more than its nearest rival bidder to acquire US-based Novelis, in a six-month long battle that finally ended in February this year, when India's largest aluminium company said its $6.9-billion pitch to buy Novelis had been declared successful.

This and other interesting details about the Aditya Birla group company's move to acquire the world's largest maker of flat-rolled aluminium products, have come to the fore in a recent mandatory filing that Novelis made with the SEC. The acquisition of Novelis isn't formally complete as Hindalco's bid has to be cleared by 67% of Novelis' shareholders.

On February 11, Hindalco said it had offered $44.93 for each share of Novelis, a global major that supplies high-value metal sheets to companies such as Coke and Audi. Hindalco's all-cash transaction valued Novelis at $5.9 billion, including approximately $2.40-billion debt.

Markets in India had reacted negatively, with investors selling the stock fearing the expensive cost would affect Hindalco's profitability. Novelis' filing says that Hindalco's first indicative non-binding bid in November 2006 was in the range of $28.50 to $31.30 per share.

Hindalco had two competitors in the race to bag Novelis. While the filing doesn't name the two companies, it says that one (called Company A) approached Novelis late in 2005, while the other, Company B, got interested in April 2006.

Interestingly, it wasn't until May 2006, that Hindalco came into the picture. Company managing director Debu Bhattacharya wrote to the Novelis management in July 2006, giving the process almost six months before group chairman Kumar Mangalam Birla announced at a weekend press conference in Mumbai, about its winning bid.

When contacted, an Aditya Birla group spokesperson said: "It was an open bidding process and we are not aware of the other two companies. We went through the whole process through Morgan Stanley."

The filing also says that Company B made an offer higher than Hindalco's in the range of $49 to $62 per share in a stock-for-stock deal. This was, however, turned down as the Novelis board felt "that pursuing the proposal could put at risk the more certain value to our shareholders of the all-cash bids we have received."

On February 9, Novelis contacted Hindalco that the Indian company's proposal could be presented to the Canadian company's board. "The acquisition of Novelis is a landmark transaction for Hindalco and our group," said Mr Bhattacharya.

"It is in line with our long term strategies of expanding our global presence across our various businesses and is consistent with our vision of taking India to the world. 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.

The complementary expertise of both these companies will create and provide a strong platform for sustainable growth and ongoing success."