This is a crucial point of agreement reached with the Kumarmangalam Birla-owned Hindalco Industries, which has announced a proposal to acquire a controlling stake of 51 per cent in India Foils in two stages: first, a 9.9 per cent stake buyout from the Khaitans; and, second, a preferential allotment of new shares and warrants, which will hike stake to 51 per cent at Rs 45 per share.

The preferential allotment will aggregate Rs 65 crore. Hindalco chairman Kumarmanglam Birla told The Financial Express: "India Foils needs a cash infusion of Rs 125 crore, and the proposed reversal of investments will rake in Rs 70 crore." The net outstanding debt ofHindalco is Rs 215 crore, at an average cost of nearly 20 per cent.

Birla will take a controlling stake of 51 per cent stake in India Foils in two stages through Hindalco and two other subsidiaries, but has ruled out merger with Hindalco. Two subsidiaries of Hindalco -- Renuka Investments and Renukeshwar Investments --- have reached an understanding to buyout 17.17 lakh shares of India Foils from the Khaitans, representing 9.9 per cent of the company's equity.

Besides, as reported India Foils will allot 90 lakh shares at Rs 45 per share and 55 lakh warrants to the Hindalco subsidiaries. Each warrant will convert into one equity share at a price of Rs 45 per share within 18 months.

"India Foils requires a cash infusion of Rs 125 crore to repay the company's high-cost debt and clean up its balance sheet," Birla said. The company currently has a net debt outstanding of Rs 215 crore (average cost of funds of 18-19 per cent), and the debt-equity ratio currently stands at 1.7.1

The acquisition, Birla said,fits perfectly into Hindalco's strategy of attaining a leadership position in downstream value-added products. The group's market share in foils will zoom to 55 per cent, as India Foils, a market leader in the segment, has an installed capacity of 19,000 tonnes. Indian Aluminium, along with Annapurna Foils, has a market share of around 24 per cent. The takeover, Birla said, will lead to greater synergies as India Foils is a major customer of Hindalco, accounting for 5-6 per cent of its metal sales.

According to Birla: "This move stems from the group's strategy of focusing on sectors where it can maintain its dominant position. The combination of Hindalco and India Foils makes imminent strategic and financial sense, and will result in tremendous shareholder value for both the companies."

Birla said that in spite of having acquired four companies in the past six months, he sees the period essentially as one of consolidation, when Hindalco acquired companies that were either synergistic to existingoperations or gave it leadership position in their areas of core competence.