Professional Documents
Culture Documents
1. Overview of both companies 2. Problems in Novelis 3. Opportunities for Hindalco 4. Pre Negotiation Stage 5. Negotiation Climate 6. Timeline of the events 7. BATNA 8. ZOPA 9. Negotiation Style 10. Phases of Negotiation 11. Various tactics and counter tactics 12. International Negotiation context 13. Expert opinion and present Situation
Hindalco Industries Limited, a flagship company of the Aditya Birla Group, commenced its operations in 1962 Two strategic businesses aluminium and copper with annual revenue of US $14 billion and a market capitalization in excess of US $ 23 billion The country's largest integrated aluminium producer with a domestic market share of 42 per cent in primary aluminium Products:primary aluminium ingots, billets, wire rods, rolled products, extrusions, foils and alloy wheels
Novelis is the world leader in aluminium rolling, producing an estimated 19 percent of the world's flat-rolled aluminium products Novelis is the world leader in the recycling of Used aluminium beverage cans The company is No. 1 rolled products producer in Europe,South America and Asia, and the No. 2 producer in North America Customers in high -value markets including transportation, packaging, construction and printing automotive,
Novelis was a new company, formed in January 2005, as a result of a forced spin-off from its parent, the $ 23.6-billion aluminium giant and Canada-based Alcan Because of merger of Alcan and French aluminium company Pechiney
Hindalco will be the world's largest aluminium rolling company The acquisition of Novelis is in line with our long-term strategy of expanding our global presence across our various businesses and is consistent with our vision of taking India to the world.-Kumar Mangalam Birla Global Precence: Novelis has 38 plants in 12 countries Scalability: primary aluminium capacity of approximately 1 million tonne Downstream expansion in value chain
Reasons for Hindalco to enter into deal Increase presence in high end downstream market Enhancing global presence
Bad liquidity situation Contractual Obligations Confusion about its own business model
Time Hindalco offered to buy Novelis in August 2006 over a lunch meeting between officials of Hindalco and Novelis Proper homework had been done by Hindalco before popping up the question Mr. Birla was ready to buy Novelis for past six months
Interest was shown at a lunch meeting at JW Marriott in Atlanta By early 2007, all bidders, including Hindalco, TPG and a few others, had completed the due-diligence process
With only a week to go before the bids had to be submitted, employees at Novelis' Atlanta headquarters organised a highprofile Indian food festival. "It was a subtle, yet loud message," recalls Mr Birla with a smile Novelis employees wanted Hindalco to win the deal as it was evident during various plant visits
Hindalco viewed the deal as a strategic move to scale up operations, expand globally and increase presence in high end downstream market Novelis was considered to be in a mess
Mr. Birla was very optimistic about the deal he immediately sensed this could define his career
Consultants termed Mr. Birla as stubborn and overconfident Analysts believe the Birlas are paying too high a price for Novelis
May,2006
Hindalco started thinking of transforming themselves into a fully integrated global player Decision was to acquire a downstream aluminium company with cutting-edge technology that could then be replicated at home
June, 2006
Kumar Mangalam Birla and Debu Bhattacharya decided to acquire Novelis August,2006 UBS Securities India Pvt Ltd headed by Manisha Girotra
Novelis management had decided to go for a competitive bidding to get the best price Six foreign banks lined up funds and even gave confidential December,2006 comfort letters to Hindalco for up to $5 billion
February,2007
Bid took under the guidance of Morgan Stanley Hindalco put a one time bid @ $44.93 per share and was accepted by Novelis
May, 2007
Novelis:
collaborative to competitive They were trading on an average around $30 per share and finally the deal was closed at approx. $45
Were paid a market premium of 15% extra per share in spite of heavy debt
Hindalco:
Accommodative
In August 2006, Hindalco chairman Kumar Mangalam Birla and MD Debnarayan Bhattacharya put forward the proposal to acquire Novellis before its MD and CEO Brian W Sturgell at the JW Marriott hotel in Atlanta The common ground was that both the companies were into aluminium business. Hindalco was into upstream aluminum business(raw materials) and Novelis was into downstream business(can manufacturing) Novelis CEO Brian W Sturgell was not utterly shocked with the proposal and he took the proposal to the board even though Hindalco was 1/4th the size of Novelis
Novelis share prices were floating at around $33 per share and Hindalco offered an offer of $35 per share Novelis discussed and its existing contracts with its customers post the acquisition Hindalco wanted to centralize Noveliss decentralized business that operated across the 4 regions
Conflict among employees of Novelis regarding job cuts post acquisition was discussed with Hindalco
Novelis capitalized on the keen interest of Hindalcos interest in this deal and appointed Morgan Stanley to invite more prospective buyers to make it a competitive bidding process This increased the share price of Novelis and Mr. Birlas hope to seal the deal quickly and quietly was not successful Hindalco at present was into upstream aluminum business but post this deal the future saw it entering into downstream aluminum business
Employees of Novelis realized Hindalco was their best offer and the employees at Noveliss Atlanta headquarters organized a high-profile Indian food festival
The takeover was finalized on 12th February 2007 With the share price of Novelis at an all time high of $38 per share Hindalco sealed the offer by offering a higher price of $44.93 per share (18% higher) More than 99% of Novelis shareholders voted in favor of the deal
It was an all cash deal with the net valuation of Novelis at $6 Billion including $2.4 Billion in debt
Hindalco realized that Novelis was in a mess contracted to sell cans lower than its raw material cost, liquidity situation was bad and proper accounts not filed Two Novelis plants in Britain had to be shut down by Hindalco and the technology brought into India Hindalco couldnt live up to its promise and decided to cut the Novelis workforce by 9%
The approach was to establish Novelis as a value creator, not a volume filler
Initially both parties started in a collaborative style When Novelis realized that public interest was growing on this matter, they decided to take advantage of the situation They decided to go for an open bid and put pressure on Hindalco in terms of time
They also conducted one high-profile Indian food festival at Atlanta headquarters to show their employee support to Hindalco
This increased the belief of Hindalco on Novelis employees They were caught at this moment and quoted a high price to ensure a successful bid By this time Russian company Rusal tried to enter the
bid, but Hindalco hurried the process and ensured that
Many experts criticized Aditya Birla group chairman Kumar Mangalam Birla for bidding so highly for the deal They commented that Novelis was highly overvalued They commented that the leverage position was pretty risky
Investors were worried about the high debt carried forward from Novelis
Culture
External stakeholders
Over the years, Kumar Mangalam Birla proved that his decision was right Hindalco capitalized on the technological capability of Novelis Now Novelis is a short in the arm for Hindalco The Novelis acquisition has done quite well for the fortunes of Hindalco, as it has consistently generated cash In 2009-10, it generated 65 per cent (Rs 3,000 crore) of the parents cash flow In 2011-12, it generated even more at 72 per cent (Rs 5,000 crore)