Alcan to exit India, sells Indal to Hindalco

“Divestment of Alcan’s stake in favour of Hindalco is part of our global realignment strategy,” T M Tracy, Senior Advisor of Alcan said. But we are still interested in $ 1 billion export oriented unit Utkal alumina project in Orissa, in which it has a 35 per cent stake, continued. “We are not getting out of India… selling stake in Indal is part of our global corporate strategy,” he added.

Incidentally, it was the same Alcan which just two weeks back announced that it is committed to India and will not withdraw from the Indian market. Alcan — which hiked its stake in Indal to 54.62 per cent after the takeover war with Sterlite — had expressed its intention to remain committed to the company 18 months ago. Soon after the announcement on Thursday, Hindalco shares shot up by nearly Rs 41 at 708. Indal shares were frozen at the upper end of the eight per cent circuit filter at Rs 133.

Hindalco will also make an open offer for buying another 20 per cent of Indal from the public as per the takeover regulations of the Securities and Exchange Board of India (SEBI), it said. This will cost the company another Rs 270 crore, taking the total to Rs 1,008 crore, and making it the largest all cash ever corporare deal in India.

Incidentally, Indal shares have risen continuously from Rs 91.70 since mid-March in an otherwise bearish market signifying that the news was already leaked out to the stock markets. Analysts said Hindalco’s small presence in the downstream aluminium segment coupled with Indal’s big capacities will result in Hindalco becoming the single biggest player in the sector.

Hindalco runs a 242,000 tonne-per-annum aluminium smelter, which is operating at capacity levels. Indal would continue to exist as a separate company, Birla said. Analysts said given the firm’s strong financial backings, Hindalco will be in a position to invest large funds and boost Indal’s poor primary aluminium capacity levels.

Indal reported aluminium production of around 40,000 tonnes in the 11 months of 1999/2,000 (April-March). The Rs 1,000 crore-plus buyout will entirely be funded from Hindalco’s internal accruals and cash reserves.

Group chairman Kumar Mangalam Birla said: "There is a great strategic synergy between the operations of Hindalco and Indal. The acquisition will greatly enhance value for shareholders of Hindalco."

“We see a strategic fit between our operations and that of indal and the consolidation resulting from the acquisition will lead to shareholder value, product rationalisation and development, integration of logistics, improved marketing strategy and enhanced customer reach,” birla expalined.

Hindalco has adequate metal capacity but was facing a marginal deficit in alumina and indal’s capacity would help bridge the gap, he said and added the latter’s downstream products allow it to hedge against volatility on the London Metal Exchange. "This deal will give Hindalco control of about 50 per cent of India’s total primary aluminium capacity and also make it the biggest downstream capacity producer," said a metals analyst.

"The biggest upside for Hindalco is the pricing control it will have over secondary products such as sheets, foils and extrusions," he added. To gain downstream capacity, Hindalco in 1998 had agreed to buy India Foils Ltd but this fell through and India Foils was subsequently acquired by the Sterlite group. To a question, whether the Aditya Birla group would be interested in acquiring a stake in Nalco, Birla said, “in principle whenever we have value creating opportunities we will be interested.”

Birla explained that the ongoing Rs 800 crore capacity expansion of indal would continue and pointed out that there would be no retrenchment of the workforce. A K Agarwala, whole-time director of Hindalco, added, “the terms of the agreement includes a non-compete clause from Alcan for a period of three years which could be extended for a further two year period.”