1 PRESS RELEASE July 21, 2002 Mumba i, India LANDMARK CORPORATE RESTRUCTURING OF HINDALCO AND INDO GULF TO CREATE NON FERROUS METAL POWERHOUSE AND AN INDIAN CORPORATE GIANT Indo Gulf to merge copper business with Hindalco Fertiliser business of Indo Gulf to be demerged into a separate company to be named Indo Gulf Fertilisers 1 equity share of Hindalco for 12 equity shares of Indo Gulfand 1 equity share s of the fertilise r company fo r 5 equity shares of Indo Gulf to be issued to Indo Gulf shareholders Attractively priced open offer for Indal shares at Rs. 120 by Hindalco at premium of 36% to 26 Week Average (SEBI Statutory Price) with aim to attain 100% shareholding in INDAL EPS accretion of approximately 7-10% in the short term and 15-20% in the medium term for Hindalco shareholders Premium over market price for Indo Gulf shareholders Transaction expected to be value enhancing for shareholders of all three companies
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The Boards of Directors of Hindalco Industries Limited (“Hindalco”) and Indo Gulf
Corporation Limited (“IGCL”), in their respective meetings today have approved the
restructuring proposal on the consolidation of the copper business of IGCL with Hindalco and
the demerger of its urea fertiliser business as an independent entity. The scheme of arrangement,
valuation report and share entitlement ratio has also met with Boards’ approval. This landmark
restructuring, valued at around Rs. 7,000 crores (US$ 1.4 billion), is one of the largest of its
kind in India.
Mr. Kumar Mangalam Birla, Aditya Birla Group Chairman, said “This restructuring exercise is
an important step in our ongoing endeavours to create a business that is both focussed and has
the financial capability to become a global player. The non-ferrous metal sector is integral to our
future growth plans. We would like to bring in maximum focus and harness all possible synergies
to make it truly world class.”
Putting this in context of a similar exercise by the group for its cement businesses four years ago
in Grasim and Indian Rayon, Mr. Birla said, “we created significant value for shareholders
together with market out-performance for both those group companies in a similar restructuring
exercise and expect to do the same through this transaction.”
The Restructuring Scheme
Under the scheme, Hindalco will issue to IGCL shareholders 1 equity share of Hindalco for
every 12 equity shares of IGCL held. IGCL shareholders will also receive 1 equity share of a
new company to be named as Indo Gulf Fertilisers Limited (“Indo Gulf Fertilisers”) for every 5
equity shares of IGCL. Similarly, the GDR holders of IGCL will receive 1 GDR of Hindalco for
every 12 GDRs held by them in IGCL, and receive 1 GDR of Indo Gulf Fertilisers for every 5
GDRs held by them in IGCL.
The recommended swap ratio is expected to translate into a reasonable premium to IGCLshareholders based on current Hindalco share price and estimated price for Indo Gulf Fertilisers
based on fertiliser industry multiples and the company’s financial performance and balance sheet
strength.
The share exchange ratio approved by the Board of the two companies was based on a joint
valuation report, of CC Chokshi & Co., a member firm of Deloitte Touche Tohmatsu and Ernst
& Young. The share exchange ratio has been determined in accordance with the best practices
in valuation using well-established techniques such as discounted cash flow, book value and
relative market prices.
As per the approval of the Board, Hindalco is also simultaneously making a voluntary open offer
for the balance shareholding in INDAL at Rs. 120 per equity share, thereby providing an
opportunity to INDAL shareholders to exit their holding in the company at an attractive
premium to the market price. Consequent to successful completion of the offer, Hindalco
proposes to de-list INDAL from all the Stock Exchanges. The open offer price is at 24 %
premium to last 1 month average price and 36 % premium to the 26 week average (SEBI
statutory price).
To facilitate this plan, on July 21, 2002, the Board of Directors of Hindalco also took note of
the stoppage of the Buyback programme and approved closure of the scheme.
The Restructuring Plan
Mr. Birla stated that the global consolidation trend has accelerated the growth of the bigger
players at the expense of smaller players. In his view, “Even though Hindalco and IGCL’s
copper business have performed excellently relative to their global peers and are expected to
continue to do so, given the current global environment, the coming together of these businesses
will propel their future growth at a faster pace.”
He explained that “this transaction will enhance our financing capability, access to global
opportunities as well as investor interest, as capital markets increasingly reward larger players
with better valuations. A stronger balance sheet created by such a merger undoubtedly opens a
window to a variety of value enhancing opportunities.”
Capital markets have rewarded multi-resource companies, for instance BHP Billiton and Rio
Tinto, which are key examples of multi-resource companies with global leadership positions inmetals. These companies have significant exposure to both aluminium and copper and have
demonstrated superior capital market performance in recent times as compared to perceived
metal pure-plays. The market has rewarded these players for taking proactive steps in a
consolidating industry, having balanced exposure to commodities without exposure to
commensurate risks, financial strength and strong cash flow generation and high resilience to
Mr A.K. Agarwala, Director (Whole-time), Hindalco Industries stated “Our intent is to
transform Hindalco into a globally competitive non-ferrous metals powerhouse and create
enhanced value for all stakeholders.”
Mr. D. Bhattacharya, Managing Director, Indo Gulf Corporation said, “Even though Hindalco
and IGCL have demonstrated strong performance continuously, we believe that the stock of
both these companies is undervalued. We believe that over the medium term this restructuring
should help correct this anomaly and should result in a positive re-rating of the combined entity.”
Building a Platform for Value Enhancing Growth Post Restructuring
Post restructuring, Hindalco will emerge as one of the largest private sector companies in India
(proforma at March 31, 2002 and including full financial consolidation of INDAL and Dahej
Harbour & Infrastructure Ltd.):
Ø Net sales in excess of Rs. 6,000 crores (US$ 1.2 billion), an increase of around 60%
Ø Net profit in excess of Rs.1,000 crores (US$ 200 million), an increase of around 36%
Ø Net worth in excess of Rs.6,000 crores (US$ 1.2 billion), an increase of around 25%Ø Balance sheet size in excess of Rs.10,000 crores (US$ 2.0 billion), an increase of around
30%
Over the medium term, the transaction is expected to create a company with a very strong
operating/ financial growth story:
Ø Aim to triple the revenues within next 5 years . . .
Ø . . .resulting in EBITDA growth of around 250%. . .
Ø . . .resulting in substantial increase in financing capability in the medium term
The transaction is expected to be beneficial to shareholders of both Hindalco and IGCL. Themerger would enhance value for shareholders of Hindalco, which will include all shareholders of
Indo-Gulf, through the creation of a larger non-ferrous metal company with the strong
profitability of the copper business and full consolidation benefits of INDAL’s earnings.
Importantly, the transaction is expected to provide attractive EPS accretion for Hindalco
shareholders of approximately 7-10% in the short term and 15-20% in the medium term.
For shareholders of IGCL, benefits accrue from the opportunity to participate in the future
growth of Hindalco as they would become its shareholders as well as continue as shareholders
of a robust and focussed fertiliser entity Indo Gulf Fertilisers that is expected to:
Ø have a strong debt free balance sheet with significant leverage capability for future
initiatives in the sector
Ø continue to enjoy a leadership position in profitability in the industry as one the most
cost efficient Urea producers
Ø be well positioned to benefit from a market re-rating, attractive demand growth, likely
industry policy changes, as also from disinvestment opportunities in the sector
Advisors to the Restructuring
DSP Merrill Lynch Limited (DSPML) acted as Transaction Advisors; DSP ML, one of India'sleading investment bank and securities firm is an affiliate of Merrill Lynch & Co. (ML), one of
the world's leading capital raising, financial management and advisory companies.
Amarchand & Mangaldas and Suresh A. Shroff & Company, one of India’s leading law firms
acted as Legal Advisors.
The valuers to the transaction were CC Chokshi & Co. (a member firm of Deloitte Touche
Tohmatsu) and Ernst & Young.
The proposed restructuring will be filed in the High Court of Judicature at Mumbai and the HighCourt in Uttar Pradesh. The restructuring will further be subject to various approvals, including
those from shareholders, regulatory authorities and lenders / creditors.