FINANCIAL RE-ENGINEERING

Submitted to:Submitted by : Stephen J 1021519 Sumit 1021520 Sharath 1021516

What is Re-engineering ?
Re-engineering is the radical redesign of business processes and organisational structure in order to achieve significant improvements in performance, such as productivity, cost reduction, cycle time, and quality.

Financial Re-engineering
Financial Re-engineering is the recementing or changing of products, systems, people, brands and technology which has to be done with financial restructuring and financial requantification of every qualitative business variable.

re-engineering occurs in a series of four steps or 4 Es

Examination, Establishment, Execution and Evaluation.

Re-engineering is not downsizing, restructuring, re-organization, automation new technology etc. It is the examination and reform or change of five components of the business that are: 1. Strategy 2. Processes 3. Technology 4. Organization 5. Culture

Financial Re-engineering is done for various business reasons and those could be...

Poor financial performance, External competition, Erosion of market share, or Emerging market opportunities.

Holistic Approach to Innovative Financial Engineering

Benchmarking of the earning-expectations. Product and process choices. Funding structure (variations, costs and flexibility). Fund-deployment strategies. Monitoring and assessment systems. Programmes and policies to reward various stakeholders. Satisfaction of the shareholders. Perpetual sustenance of the financial and real growth of the business enterprise.

Various Forms of Financial Reengineering

Financial Restructuring Corporate Restructuring
Mergers /Acquisitions Divestitures Demergers

Financial Re-engineering Corporate Re-structuring:- Acquisition

March 26, 2008 Tata Motors Ltd. of India agreed to acquire the entire share capital of Land Rover and Jaguar Cars Ltd from Ford Motor Co. The two transactions are estimated to have a combined value of an estimated $2.3 billion. The purchase consideration includes the ownership by Jaguar and Land Rover or perpetual royalty-free licences of all necessary Intellectual Property Rights, manufacturing plants, two advanced design centres in the UK, and worldwide network of National Sales Companies.

Value Capture The deal value of $ 2.3 b is almost equal what Ford paid for the brand of Jaguar alone(approx $ 2b). The opportunity to buy brands like Jaguar and Land Rover ,which are rated among the top luxury brands in their respective segments, for cheap doesnt come knocking every time. Fast Growing Market Segment With about 30% growth rate, the luxury car segment is the top growing segment in India and has already seen the entry of biggies like Audi and Porsche. With established distribution network in India, Tata Motors can offer top-rated products for these segments. Though the absolute numbers may be small and would reduce due to the current downturn, the gains would be huge when the economy turns around and the salaries rise.

Deal Financing Tata Motors financed the deal through a bridge loan of $ 3 billion arranged through a consortium of 8 banks. It intended to refinance that loan though a mixture of domestic and international equity issues and debt. However because of the liquidity crunch, a deal now will be more expensive than they'd initially planned for. Key Risk Factors The key risk after this acquisition would be the performance of JLR. Any drop in profitability would have an impact on Tata Motors consolidated financials. A prolonged downturn in commercial vehicle demand would stretch domestic profitability and cash flow. Further downturn in the global auto industry. Increasing cost of capital and liquidity crunch can hit bottom-line of Tata Motors much more severely.

Tata bought the companies because they believed that these two brands have a lot of growth potential in terms of revenue and sales.  In the first 10 months of 2008 Land Rover's US sales fell by 37 per cent to 25,377 compared to the same period in 2007. Jaguar's sales in the same period helped by the new XF sedan were not as badly hit but its sales still fell 3.6 per cent to 12,575.  At the same time while Jaguar's UK sales rose 11 per cent against last year's same period, Land Rover's sales fell almost 27 per cent to 30,241 units.  Not surprisingly then like GM, Ford Motor, Mercedes and BMW suffering the downturn in the West, China, Russia and India seem bright spots for JLR also.

Tata's confidence in JLR may not be misplaced. This year in Russia, Land Rover has turned out to the leading premium brand. Its sales grew 79 percent to 17,439 in the first 10 months of 2008 while Jaguar saw a more than 60 per cent growth to 1,423 units. Tata expects China to be Land Rover's No. 5 market this year and Jaguar's seventh largest, while Russia likely to be Land Rover's No. 3 and Jaguar's No 2 market. JLR's immediate priority is to set up a distribution network in India for both brands and the company feels that it can sell 2,000 to 3,000 units here to come on level with other premium brands such as BMW and Mercedes within two to three years.

About Novelis

Novelis is globally positioned and operating in 11countries with approximately 12,900 employees. The worlds leader in producing (19%) flat-rolled aluminum products. No. 1 in rolled products producers in Europe, South America and Asia. No. 2 in rolled products producers in South America. World leader in the recycling of used aluminum beverage cans.

The company caters to markets like:

Building and construction. Cans and closures. Flexible and semi-rigid packaging. Printing and Lithography. Specialty Consumer and Industrial. Automotive and Transportation. Distribution Services. Technology sales.

About Hindalco

It is the flagship company of the Aditya Birla Group. Based in Mumbai, India. One of the most cost-efficient aluminum producers globally.

Hindalcos Stock Traded on-Bombay Stock Exchange. National Stock Exchange. Luxembourg Stock Exchange.

Synergy: Reason behind merger

The combination of Hindalco and Novelis will establish aglobal integrated aluminum producer with low-cost alumina and aluminum production facilities combined with high-endaluminum rolled product capabilities . Present leaders in their respective markets. Novelis was to procure raw material from the market, which it converts into value-added products at the most reasonable prices. Hindalcos motive was to cover the major market share that Novelis possesses. Provide a strong platform for sustainable growth and ongoing success..

Risk Associated
Novelis has a high amount of debt. Hindalco will gain but Novelis will be at a loss. Hindalco is getting a ready-made market. The performance of the two companies may be completely opposite to each other.

The Deal
Hindalco has acquired Novelis in an all-cash transaction at approximately US$6 billion, including approximately US $2.40 billion of debt. AV Metals the A V Birla group's will infuse US$ 3.5 billion to finance Hindalco's proposed acquisition. AV Metals will take loans worth US$ 2.8 billion from three financial institutions, namely UBS, ABN Amro and Bank of America. Essel Mining & Industries, a closely held company of the group, will bring in US$ 300 million while Hindalco will mobilize US$ 450 million from its treasury operations.

The Outcome

The Novelis acquisition will give immediate scale and aglobal footprint. Overseas operations already account for nearly 30 per cent of the group's revenue now and the Novelisacquisition would increase it to 40 per cent in three years. The acquisition will help Hindalco to shorten the learning curve for technology. The group would now have operations in 14 countries. The group would become the world's largest player in the downstream aluminum.

Thank You for Your Time.