Two years ago, Indian Aluminium rejected a takeover bid from Sterlite Industries. Now it has agreed to sell out to the A V Birla group's Hindalco Industries in an all-cash deal. The price: Rs 190 per share, which is at a premium of Rs 70 over Indal's market price on 23 March 2000.

Hindalco is paying Indal's parent, Alcan of Canada, Rs 738 crore for its 54.6 per cent stake in Indal. It is also committed to making a public offer for a further 20 per cent, which will take the total price to Rs 1,008 crore. That makes it the biggest all-cash takeover deal in corporate India so far.

Hindalco will fund the entire takeover through internal accruals.
Earlier Hindalco had lost the opportunity to take over India Foils Ltd, which was acquired by Sterlite Industries. But that has only whetted the A V Birla group's for axquisitions. This is the second major acquisition by the group. It recently acquired Coats Viyella's garments operations in India for Rs 236.23 crore.

Just two years ago, in February 1998, Alcan had rejected Sterlite Industries' offer to buy a stake in Indal, saying Alcan was fully committed to Indal and had confidence in its management. After Sterlite's unsolicited bid the Canadian company paid Rs 200 a share to raise its stake in Indal to 54.6 per cent from the earlier 34.6 per cent. Sterlite's final bid was Rs. 221 per share, including Rs. 175 in cash and the balance in 'optionally convertible preferential shares'.

People, projects will stay
The Indal board will be reconstituted, with Alcan's representatives being replaced by AV Birla group directors. Hindalco's president and whole-time director A K Agarwala will head the combined entity. Group chairman Kumar Mangalam Birla has announced that Indal's top management and employees would not be affected by the changes.

The acquisition will not affect Hindalco's expansion project. Given the company's comfortable debt-equity ratio, it will be able to fund this expansion through a marginal increase in the debt level.

A V Birla group chairman Kumar Mangalam Birla has confirmed that Indal's ongoing Rs 800-crore expansion programme will also be continued. However, according the group will re-asssess some of the loss-making Indal subsidiaries.

Alcan's decision to sell its Indal stake has been precipitated by a global restructuring happening in the aluminium industry. In August 1999, Alcan, Alusuisee of Switzerland, and Pechiney of France united to create the world's second largest aluminium company. That is being followed up with radical rationalisation in the industry.
The A V Birla group has been represented by DSP Merrill Lynch, and Alcan by JM Morgan Stanley.

Perfect fit
Mr Agarwala believes that the acquisition will result in improvements in productivity, logistics, and customer service. Despite being rivals, Hindalco and Indal have maintained good relations in the past. That should help the A V Birla group management ensure a smooth transition.

The acquisition will strengthen Hindalco in more ways than one. Besides giving it greater size, it will give the company a more balanced product mix. The company is usually short of alumina, which Indal has in surplus. (Alumina is an intermediate material between bauxite and aluminium metal, and has to be smelted to produce the metal.) Indal, on the other hand, is short of smelting capacity, and cannot make enough primary metal to feed its rolling and extrusion lines for finished products.

Indal's large capacities in finished, value-added products (foils, extrusions, rolled metal, etc.) will fetch Hindalco better value addition. The Hindalco management has been keen to improve value addition at Hindalco, and an acquisition made sense.

Other gains
Clearly, also, it makes eminent sense for Hindalco to eliminate a major rival by taking it over. Indal's parent Alcan has signed a three-year no-compete agreement, which may be extended for a further two years.

The Canadian group will, however, be free to bid for and acquire Bharat Aluminium Company or National Aluminium Company, the public sector companies, which the government may want to privatise soon.

Further, Alcan has agreed to help market Indal products through its Asian network. It will also continue to provide technical support for special products.

Hindalco will also become a participant in the 1 million tonnes per annum Utkal Alumina project, in which Indal has a 20 per cent stake. Alcan owns 35 per cent of Utkal Alumina's equity and Norsk Hydro 45 per cent.

Nasdaq listing?
Now Hindalco Industries is considering a Nasdaq listing by converting its global depository receipts into American depository receipts. It has appointed DSP Merrill Lynch to advise it on the changeover and begin the exercise by June 2000, it is reported. It is assumed that by then the Indal will be completed.

Hindalco has $172 million in GDRs outstanding. These were issued in July 1993 ($72 million) and July 1994 ($100 million).