Monday, January 29, 2007

Davenport Comments on Novelis (NVL) Takeover Rumors

Davenport comments on Novelis Inc. (NYSE: NVL) following reports on Friday that Aditya Birla Group could make an offer for the company. The firm said the reported price range of $5-$6 billion, including the assumption of $2.4 billion in debt, would put a potential offer at $35-$49 share. Analyst Lloyd O'Carroll said there is very little overlap between Hindalco and NVL's downstream business, and thus not a lot of synergies. O'Carroll said the lack of synergies may no dissuade Hindalco. He also notes that in January, Hindalco was rumored to be bidding for a division of Alcan, but quickly denied the report. They have yet to hear a response from Hindalco on NVL.

The firm also thinks there are multiple bidders for NVL. They think NVL could be valued up to $68 per share on a takeover basis, based on the NPV of free cash flows through 2010.

The firm maintains their Buy rating and raises their price target from $33 to $45.

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