Acquisition Inconsistencies and Corporate Governance Challenges
Posted: 17 Sep 2009
Date Written: September 12, 2008
This research paper looks at the financial disclosures during cross border acquisitions.The acquisition process gives the investors to scan the investment arena to park his funds in a venture. The investors are clueless as to the valuation of the acquisition when their company went on to look at the prior year performances rather the current year financial standing.This is a serious issue especially as the economic buoyancey is escalating.
On 10th Feb, 2007 Hindalco acquired Novelis through its owned subsidiary AV metals by purchasing 100% of the issued and outstanding common shares at US$ 44.93 per share, amounting to US$ 3.6 billion. Novelis was the company which was running on loss and had debt of US$2.4 billion. Still, Hindalco went forward to acquire Novelis by paying a premium of 16.6 % on the closing price of Novelis’s stock. One of the main events of this acquisition was that Hindalco overvalued this deal because it took into the consideration the financial report of 2005 rather than 2006.The main objective behind this deal for Hindalco was to become a world leader in aluminum flat rolled product.
This research paper is case specific as to the governance issues as to: 1. Whether Hindalco is justified in using its funds to acquire another company based on its previous period financial statements.
2. Are the stakeholders are agreeable to an overvalued acquisition even if there is a perceived objective of achieving global leadership?
These questions are better answered with the consideration of financial outlays and synergic operations. The latest financial information post acquisition has been provided to facilitate the understanding the deal logic and performance. The question of sustainability and continued governance has enhanced the scope of consolidated business despite melt down.
Keywords: Cross Border Acquisitions, Corporate Governance, Corporate disclosures, Mergers, Acquisitions
JEL Classification: M19, M41, G32, G34
Suggested Citation: Suggested Citation