February 11, 2007 / 5:52 PM / 12 years ago

UPDATE 1-India's Hindalco to acquire Canada's Novelis

(Adds detail, quotes)

By Himangshu Watts

MUMBAI, Feb 11 (Reuters) - India’s top aluminium producer, Hindalco Industries Ltd.(HALC.BO) said on Sunday it had agreed to acquire Novelis Inc. NVL.TO NVL.N in an all-cash deal that values the Canadian company at $3.5 billion.

Hindalco Chairman K.M. Birla said this would give the Indian firm access to new technology and markets and double its turnover to $20 billion, justifying the price of $44.93 per Novelis share, a premium of 16.7 percent over Friday’s closing price.

“When we are acquiring a world leader, one would have to pay a premium. It is very reasonable,” Birla told reporters adding that it would take a decade to build comparable assets, estimated to be worth $12 billion.

He said the cost of the acquisition, including Novelis’ debt of $2.40 billion would be $5.9 billion.

The acquisition is the latest in the series by Indian firms and was announced less than two weeks after Tata Steel (TISC.BO) won the auction of Anglo-Dutch steel maker Corus Group CS.L CS.AS for $12 billion.

Birla said the board of Novelis had approved the acquisition which was likely to be completed in the second quarter. He said the deal was ringfenced, making it tough for a new bidder to come in.

Novelis, whose customers include Coca Cola (KO.N), General Motors (GM.N) and Ford Motor Co. (F.N), and the world’s biggest can maker, Rexam Plc REX.L, would add top-end products to Hindalco’s portfolio and insulate it from commodity price volatility, he said.

But these contracts would expire by 2010, after which the acquisition would boost Hindalco’s earnings, Hindalco officials said.

Atlanta-based Novelis, which was spun off from Canadian aluminium giant Alcan Inc AL.TO two years ago, has struggled since it became a standalone company as it does not produce aluminium but its contracts limit how much costs it can pass on to customers.

Birla said Novalis was an efficient company which would not suffer job cuts after the acquisition and attributed its losses entirely to the contracts it had signed in the past.

Hindalco officials said it would fund the acquisition by borrowing $2.8 billion from banks, $300 million from another company in the Aditya Birla group that controls Hindalco and $450 million from its own reserves.

Indian companies, with low production costs and easy access to funds, have been scouting the globe for acquisitions and have bought Western firms in several sectors including drugs, information technology and metals.

This has boosted demand for experienced bankers and traders as firms from Lehman Brothers LEH.N and UBS UBSN.VX to Goldman Sachs (GS.N) expand their teams in a market where investment banking revenue jumped 23 percent to $413 million last year, according to market data firm Dealogic. (Additional reporting by Janaki Krishnan)

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