Novelis may buy BP out of joint venture

Novelis may buy BP out of joint venture

Mumbai: Novelis Inc., the US-based aluminium cans maker owned by the Aditya Birla Group, is in talks to buy out BP Plc’s 60% stake in its US joint venture Logan Aluminium Inc. for $600 million in an all-cash deal, two persons familiar with the development said. One of them is an investment banker.

Novelis now controls 40% of Logan, which also makes automotive sheets. The joint venture was formed in 1983, before the Aditya Birla Group flagship Hindalco Industries Ltd acquired Novelis in February 2007.

BP controls Logan through wholly-owned Arco Aluminium Inc., which manufactures aluminium sheets used by the beverage and automotive industries.

Both BP and Aditya Birla Group declined to comment for this story.

“We don’t comment on market rumours and speculation about disposals and acquisitions," a BP spokesman said.

“In line with our media policy, we do not comment on market speculation," an Aditya Birla spokeswoman said.

The deal is part of a global attempt by BP to sell its non-core assets following an announcement in June in which the British oil giant had said it was divesting $10 billion (Rs44,300 crore) of its non-core assets, one of the person quoted earlier said.

Proceeds from the sale are likely to be used by BP to increase the cash available to the group after the company had to spend billions of dollars to plug the recent oil spill in the Gulf of Mexico.

For the Aditya Birla Group, it’s an opportunity to tighten its hold over the fast growing world aluminium market in which Hindalco Industries is among the top five companies.

At $13 billion consolidated turnover with a presence in 12 countries, Hindalco is currently a Fortune 500 company.

If the deal goes through, it will increase Novelis’ presence in aluminium sheet products in the North American market.

“The Indian group is likely to hold a majority stake in the company in anticipation of the future cash flows," the second person said.

Tarang Bhanushali, metals analyst with Mumbai-based brokerage India Infoline Ltd, said the timing was perfect in the light of Novelis’ performance in the last two quarters.

“Novelis recorded its highest ever operational profit in the first quarter. About 58% of Novelis’ business comes from beverage cans, which is demand inelastic, in an economic depression or an upsurge," he said.

According to Bhanushali, automobile demand has picked up in developed markets such as the US and the UK, and this means margins for the company will improve.

The company had cash and cash equivalents of $419 million as of June-end, out of a total $1.1 billion, which also includes overdrafts and loan facilities.

The company’s Ebita (earnings before interest tax and amortization) rose 112% to $263 million in the April-June quarter.

Novelis’ sales for the quarter rose 29% to $2.5 billion from the year ago because of higher aluminium prices, conversion premiums and strength in the company’s end markets, the company had said while announcing earnings in August.

Chairman Kumar Mangalam Birla had indicated that Novelis will accelerate growth at Hindalco’s annual general meeting in September.

“Building on a solid foundation, Novelis today is a leaner and more nimble entity. It is perhaps the only pure play-focused, aluminium rolled products global company," he had said at the time.