Case study Merger
Novelist by India-based Handball Industries Limited (Handball), a part of Ditty Victim Barilla Group of Companies, In May 2007. The case explains the acquisition deal In detail and highlights the benefits of the deal for both the companies. It also examines the valuation of the occultation deal and how the deal was balanced.
The case concludes by describing the challenges that Handball would face in integrating the operations of Novelist and analyzing if the deal was overvalued as opined by some industry experts. Strict: Issues: » Study the synergies of the merger between Handball and Novelist В» Study the rationale behind Handball acquiring a loss making aluminum company В» Examine the way the acquisition deal was financed В» Analyze whether the deal was overvalued or not В» Analyze the trends In the global aluminum Industry Keywords: Handball Industries Limited, Novelist Inc. , Merger and Acquisition, Deal Valuation, Debt-equity Ratio, EBITDA Ratio, Indian Aluminum Industry, Merger Integration, Consolidation, Downstream Business, upstream Business “The acquisition will catapult the group into the Fortune 500 league, three years ahead of the target.
The combination of Handball and Novelist will establish a global integrated aluminum producer. ” 1 – Kumar Mangle Barilla, Chairman of Handball, In February 2007.
“The combination of Novella’s world-class rolling assets with Handrail’s growing primary aluminum operations and Its downstream fabricating assets In the rapidly growing Asian market Is an excellent prospect. “2 – De Blemished, Acting Chief Executive of Novelist, in February 2007.
Introduction On May 16, 2007, India-based Handball Industries Limited (Handball), a subsidiary of the VA (Ditty Victim) Barilla Group of Companies (Ditty Barilla Group), acquired the s-Canadian aluminum giant Novel’s Inc. (Novels). The occultation was the result of an agreement arrived at between Handball and Novelist on February 10, 2007.
Handball was to buy Novelist for US 6 billion in cash, making It ten second Deluges calculations ay an Anal company Ill t teen.
Novels was to operate as a subsidiary of Handball, and was to have Kumar Mangle Barilla (Kumar Mangle) as Chairman who was also the Chairman of Handball and the Ditty Barilla Group. Martha Finn Brooks, from Novelist would continue as Chief Operating Officer and was also appointed as the President of the merged entity. Handball was among the leading companies in the aluminum and copper industry in the world. (Refer to Exhibit I for leading aluminum companies in the world based on EBITDA figures).
In the financial year 2006-07, Handball generated revenues of IIS$ 14 billion and the company had a market capitalization of more than IIS$ 4.
5 billion. It had a significant market share in all the segments in which it operated and enjoyed a domestic market share of 42 percent in primary aluminum, 63 percent in rolled products, 20 percent in extrusions, 44 percent in foils, and 31 percent in wheels Refer to Exhibit II for Handrail’s revenues and net income for the year 2006 and 2005).
Novelist had a three million ton capacity for manufacturing value added aluminum rolled products and was a leading producer of aluminum sheet and light gauge (thin) rolled products for the construction and industrial markets. The company operated in 11 countries and supplied high quality aluminum sheet and foil products to various industries including automotive, transportation, packaging, construction, industrial products, and printing. Environmentalist’s included companies like Coca-Cola, Kodak, Ford, General Motors, and other leading Fortune 500 companies.
Novelist sold rolled aluminum products in Asia, Europe, North America, and South America (Refer to Exhibit Ill for performance of Novelist in different regions). Industry analysts opined that the acquisition would benefit Handball by strengthening the company’s global presence, as Novelist had flat rolled aluminum manufacturing plants in different locations in the world. They considered the deal a good platform for Handball to access global customers. Novelist had a 19 percent global market share in foil products, 25 percent in construction and industrial reduces, and 43 percent in beverage cans.
After the acquisition, the merged entity would emerge as the world’s largest aluminum rolling company and among the world’s top five aluminum manufacturers. According to Shiva’s Meta, Assistant Vice-President, ENCODE, “The deal will catapult Handrail’s flat rolled product capacity from 0. 2 million ton to 3. 2 million ton per annum and elevate the company to a leadership position in the business. “5 Some analysts, however, were of the view that the deal was not beneficial to Handball as it had paid a huge amount in cash to acquire a company which was recording oases.
Novelist had incurred a loss of US$ 275 million for the year 2006. Even in the year 2005, when Novelist had reported US$ 90 million as net profit, its share price did not cross IIS$ 30 (Refer to Exhibit IV for Novelist and Handball stock charts). I en analysts pollinate out Tanat ten way ten deal was Tolerance would affect Halloo’s financial performance as the acquisition would not add value in the short and medium term. Background Note Handball Industries Limited The Barilla Group of Companies was founded by Seth Ship Nary Barilla in 1857 as a cotton trading company at Plain, Restaurants, India.
The group later expanded its operations into other business segments (Refer to Exhibit V for other business of Barilla Group).
Hindustan Aluminum Corporation Limited (HACK) was established on December 1 5, 1958, to manufacture alumina, aluminum, and aluminum fabricated items. The company was formed as collaboration between Kaiser Aluminum & Chemicals Corporation (JACK), US, and the Barilla Group. Under the agreement with JACK, JACK had to train the people of HACK and provide technical advice and information for 20 years along with the assistance to operate the aluminum fabrication plant…
Novelist was split from its parent company, Local Inc. (Local), the Canada-based aluminum giant and set up as its subsidiary in January 2005. The origin of the company can be traced back to 1902 when the Northern Aluminum Company, a Canadian subsidiary of the Pittsburgh Reduction Company was set up. The Pittsburgh Reduction Company was renamed as the Aluminum Company of America (ALCOA) in the year 1907. In 1925, The Northern Aluminum Company was renamed the Aluminum Company of Canada (COCOA) Limited.
.. The Deal Handball acquired Novelist through its wholly owned subsidiary VA Metals on February 10, 2007.
VA Metals purchased 100 percent of the issued and outstanding common shares of Novelist at IIS$ 44. 93 per share, amounting to IIS$ 3.
6 billion. Handball paid a premium of 16. 6 percent on the closing price of Novelist’ stock. Apart from equity purchase, Handball also acquired Novelist’ debts to the tune of US$ 2. 4 billion..
. Rationale for Acquisition After the deal was signed for the acquisition of Novelist, Handrail’s management issued press releases claiming that the acquisition would further internationalist its operations and increase the company’s global presence. By acquiring Novelist,
Handball aimed to achieve its long-held ambition of becoming the world’s leading producer of aluminum flat rolled products. Handball had developed long-term strategies for expanding its operations globally and this acquisition was a part of it. Novelist was the leader in producing rolled products in the Asia-Pacific, Europe, and South America and was the second largest company in North America in aluminum recycling, metal solidification and in rolling technologies worldwide.
Novelist had the most modern technology In ten Ministry Ana inclemently producer null-quality products in several countries across the world…