HINDALCOS M&A

STRATEGY

Introduction:

Developing countries using M & A as globalization strategy

Emerging giants takeover deals between developed and
developing countries e.g. TCS acquired CITI group
Cash is not the only factor behind M&A
It creates value more easily than corporate in developed
countries
Western companies: for increase in size and efficiency,
Emerging economies: To obtain competencies,
Technology and knowledge
They go for M & A for long term vision aligning with their
strategy

Motives for M&A:

Economies of scale
Elimination of competition
Desire to enjoy monopoly
Adoption of modern technology
Lack of technical and managerial talent

Benefits and Problems:

Benefits:
a. Greater value generation
b. Gaining cost efficiency
c. Increase market share
d. Gain higher competitiveness

Problems:
a. Integration difficulties
b. Large or extraordinary debt
c. Handling post acquisition issues

Impact of M&A:

Employees
At the Top level management
Shareholders

Hindalcos Global
Ambition

Flagship company of 28bn$ Aditya Birla

Group
By 1999 Hindalco became the largest
aluminum producer, with nearly 40% share
of the market
Upstream operations such as bauxite
mining, alumina refining and aluminum
smelting concentration on domestic
market
Strategy turn to become a global player

Climbing M&A Competency

Stairway

Canadas Alcan, one of global leader in

aluminum industry
Merger with Pechiney (France) & Alusuisse
(Switzerland) for upstream business
Indal acquired by Hindalco for 230mn$
Annapurna Fossils- nurse it back to health
Touchy post merger intgration issues
Family run business vs professional company
Acquired Talent Not Assets

Climbing M&A Competency

Stairway

Cross border acquisition : Niftty and Mount

Gordon mines in Australia
High labor cost & restrictions
Public offering for Aditya Birla Minerals LtdFirst company to trade on Aus Stock
Exchange
Pulp mill in Canada, Transworks Information
(OS arm) acquires Minacs Worldeide
Novelis (US) Largest producer of Al
products

STICKING TO STRATEGIC
ACQUISITION

So far, Hindalco s M&A process was not much quick,

Enterprises focussing on upstream rather than downstream
are more profitable but their profitability depending on
consumer demand keeps on fluctuating,
Hindalco, initially being an upstream player, started
downstream operations to make steady profit, become
globally competitive in India & to move away from commodity
business,
So Hindalco acquired Indal & Novelis for emphasize quality,
service & brand,
Hindalcos scrip price fell by 13% & market cap fell by $600
million on the announcement of Novelis deal but the company
was keen for its long-term value,

Allowing Integration

Hindalcos management developed a naturally

evolving post-merger process,
It developed a vital four step process to meet its
initial post-merger objectives,
As a result, unlike most Western & Asian
companies, Hindalco could resolve the issues
such as whos getting what job- as well as financial
ones and could focus on integrating business
processes.

Financial Integration

Hindalco used to tackle only reporting system of the

company acquired instead of centralizing the financial
cooperation,
Senior managers sought the whole financial system of the
acquired & acquirer to be streamlined,
They consolidated the quarterly results,
They ensured entities to abide by the Securities &
Exchange Commission of the respective countries,
Hindalco & Novelis met the tax laws of the countries in
which they operate with an intention to optimize the tax
bill,
Hindalco did not insist Novelis to do all the things in its
own way.

Organizational Integration

Hindalco did not disturb an acquisitions

management structure, system or people unless
necessary,
After six months of taking over Novelis, Hindalco
deputed only two of its own executives to Novelis,
Noveliss executives, being impressed on
Hindalco, routinely check with Hindalco before
going outside the group for ideas or people.

Traditional Approach to M&A

Emerging Giants approach to M&A

Rationale To lower costs, some

The aim is to obtain new technologies,
companies use M&A to obtain
brands, and consumers in foreign
technologies , enter niches, or break into countries.
new countries.
Synergy Levels The acquirer and the
acquisition usually have the same
business model. Even when a company
takes over a start up, the approach to
market is the same.

The acquirer is often a low cost

commodity player, while the acquisition
is a value-added branded-products
company.

Integration speed- The buyer makes

several changes in the acquisition soon
after the take over. It slows the quest for
synergies thereafter.

Integration is slow moving at first. After a

while, the buyer starts pulling the
acquisition closer.

Organizational fallout- High executive

turnover and head count reduction are
likely at first. Culture clashes occur and
productivity declines, but things settle
over time.

Little interference, executive turnover, or

head count reduction occurs right after
the acquisition. Although its too soon to
tell as of now, tensions could simmer
over the long run and blow up.

Goals- The buyer has clear short term

aims but may not have thought through
long term goals.

The acquirers short term objectives may

be fuzzy, but its long term vision for the
acquisition is clear

Business Process Integration

Hindalco looks for easy and painless business wins in the short
Example of Inexpensive IT Engineers and cost savings
Example of Inventory turnover
Novelis has started overhaul of its SCM & Inventory control
practices
Value based management system at Novelis and Hindalco
benefits

Market Integration
Hindalco can easily stoke demand for the products of the

company it acquires
Concept of emerging giants which have fast growing home
markets
Augmenting demand from 1 Mn tons to 1.9 Mn tons and per capita
demand
Signs of change. Example of Can making operations
Recessions and delays in materializing
Hindalco developed a clear long term strategy and adhered to it .

Thank you