M&As run into rough weather

Feb 14, 2007 Mergers and Acquisitions

Within days of the announcements that Vodafone had won the race to acquire Hutch, followed by news about Hindalco’s plans to buy Novelis, the initial excitement already seems to be wearing off. Both the Indian companies in the above cases may have some cause for heartburn over reports in the press.

Firstly, Vodafone seems to have decided to share infrastructure with Bharti Airtel (BSE:532454) without taking the Ruias (who hold 33% stake) into confidence. It also seems a slightly premature announcement before the deal has been finalized. Of course, even the Hindujas have a bone to pick with Hutchison, as they felt the bidding process was hurried without giving them enough time to complete due diligence. Secondly, their bid was also the highest.

On the other hand, the market hammered down the Hindalco (BSE:500440) stock over concerns that it had valued Novelis too highly at $6 billion ($44.93/share). Continuing from its fall on Monday, the fell to a 52-week low of Rs.138.15, before closing at Rs.142.10 on Tuesday.

Meanwhile, Russian company Rusal, the second largest producer of primary aluminium in the world, is considering options of a counter bid for Novelis.

Hindalco’s offer has yet to be approved by shareholders, and any new bidder would have to pay a break-fee of $100 million to Hindalco, and also better the existing offer.