UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

þ  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

o  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

Novelis Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

o  No fee required.

 

 

 

Common shares, no par value

 

 

75,191,430 common shares, including 2,179,838 common shares reserved for issuance upon the exercise of options with exercise prices below $44.93 per share.

 

 

The filing fee was determined based upon the sum of (a) 75,191,430 common shares outstanding multiplied by $44.93 per share; (b) 2,179,838 common shares subject to outstanding options with exercise prices below $44.93, multiplied by $21.7647 per share (which is the excess of $44.93 over the weighted average exercise price per share); (c) $7,393,146 to be paid upon cancellation of stock appreciation rights; (d) $6,931,342 to be paid upon cancellation of stock price appreciation units; (e) $8,105,372 to be paid upon cancellation of performance share units; and (f) $5,033,901 to be paid upon cancellation of deferred share units. In accordance with Section 14(g)(1)(A) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.0000307 by the sum of the amounts calculated pursuant to clauses (a), (b), (c), (d), (e) and (f) of the preceding sentence.

 

 

$3,453,258,232

 

 

$106,016

 

o  Fee paid previously with preliminary materials.

 

 

 

 

 

 

 

 

 

 

 

          , 2007

 

Dear Shareholder:

 

You are cordially invited to attend a special meeting of the shareholders of Novelis Inc. (the “Company,” “Novelis,” “we,” “us” or “our”), which will be held at the offices of King & Spalding LLP located at 1180 Peachtree Street, N.E., Atlanta, Georgia 30309 on           , 2007, beginning at 10:00 a.m., Eastern time.

 

At the special meeting, we will ask you to consider and approve a statutory arrangement pursuant to section 192 of the Canada Business Corporations Act, whereby AV Aluminum Inc. (“Acquisition Sub”), a subsidiary of Hindalco Industries Limited (“Hindalco”), will acquire all of the outstanding common shares of Novelis for US$44.93 per share. If the arrangement is completed, we will become a subsidiary of Hindalco and you will receive US$44.93 in cash, without interest and less any applicable withholding taxes, for each Novelis common share that you own, and you will cease to have an ownership interest in the continuing business of Novelis. A copy of the arrangement agreement is attached as Annex B to the proxy statement/management information circular accompanying this letter. You are encouraged to read it in its entirety.

 

After careful consideration, our board of directors has approved the arrangement agreement and determined that the arrangement is fair to our shareholders and is in our best interests. OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RESOLUTION APPROVING THE ARRANGEMENT. The recommendation of the board of directors is based on various factors, including the opinions of Morgan Stanley & Co. Incorporated and Evercore Group LLC, financial advisors to the board of directors, to the effect that the consideration to be received by Novelis’ shareholders pursuant to the arrangement is fair, from a financial point of view, to such shareholders. A copy of the opinions of Morgan Stanley & Co. Incorporated and Evercore Group LLC are attached as Annex D and Annex E, respectively, to the proxy statement/management information circular accompanying this letter.

 

Your Vote is Very Important.  To be effective, the arrangement must be approved by a resolution passed by at least 662/3% of the votes cast at the special meeting. The arrangement agreement is also subject to certain usual and customary conditions, including the approval of the Ontario Superior Court of Justice.

 

The accompanying Notice of Special Meeting of Shareholders and proxy statement/management information circular provides you with information about the arrangement and the special meeting. Please read this information carefully, and if you require assistance, consult your financial, legal or other professional advisor.

 

Whether or not you plan to attend the special meeting in person, please complete, sign, date and return promptly the enclosed proxy card so that your common shares can be voted at the special meeting in accordance with your instructions. You may also vote your shares by telephone or internet in accordance with the instructions provided in the enclosed proxy card. We also encourage you to complete, sign, date and return the enclosed letter of transmittal so that if the arrangement is approved payment for your common shares can be sent to you as soon as possible. If you hold common shares through a broker or other nominee, you should follow the procedures provided by your broker or nominee.

 

If you have any questions or need assistance voting your common shares, please call Georgeson Inc., which is assisting us, toll-free at 866-834-6791.

 

On behalf of our board of directors, I thank you in advance for your cooperation and continued support.

 

Yours very truly,

 

William T. Monahan

Chairman of the Board

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency nor any Canadian securities regulatory authority has approved or disapproved the arrangement, passed upon the merits or fairness of the arrangement or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

 

This proxy statement/management information circular is dated          , 2007 and is first being
mailed to shareholders on or about          , 2007.

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON          , 2007

 

TO THE SHAREHOLDERS OF NOVELIS INC:

 

NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Novelis Inc. (the “Company,” “Novelis,” “we,” “us,” or “our”) will be held at the offices of King & Spalding LLP located at 1180 Peachtree Street, N.E., Atlanta, Georgia 30309, on           , 2007, beginning at 10:00 a.m., Eastern time, for the following purposes:

 

1. to consider, pursuant to an interim order of the Ontario Superior Court of Justice dated            (the “Interim Order”) and, if deemed advisable, to pass, with or without variation, a special resolution (the “Arrangement Resolution”) to approve an arrangement (the “Arrangement”) under section 192 of the Canada Business Corporations Act involving Novelis, its shareholders and other securityholders, Hindalco Industries Limited (“Hindalco”) and AV Aluminum Inc. (“Acquisition Sub”), a subsidiary of Hindalco, involving, among other things, the acquisition by Acquisition Sub of all of the outstanding common shares of Novelis for US$44.93 in cash for each common share, all as more particularly described in the accompanying proxy statement/management information circular of Novelis (the “Proxy Statement/Circular”); and

 

2. to transact such other business as may properly come before the special meeting or any adjournment or postponement thereof (the “Meeting”).

 

Only shareholders of record as of the close of business on           , 2007 will be entitled to notice of, and to vote at, the Meeting and any adjournment or postponement of the Meeting.

 

The Arrangement and the Arrangement Resolution are described in this Proxy Statement/Circular and the full text of the Arrangement Resolution is set out in Annex A to this Proxy Statement/Circular. The Proxy Statement/Circular, a form of proxy and a letter of transmittal accompany this Notice of Special Meeting of Shareholders.

 

Registered shareholders of Novelis unable to attend the Meeting in person are requested to complete, date, sign and return the accompanying form of proxy in the envelope provided for that purpose. To be used at the Meeting, proxies must be received by our registrar and transfer agent, CIBC Mellon Trust Company, 320 Bay Street, Banking Hall, Toronto, ON M5H 4A6 Canada before 5:00 p.m. (Eastern time) on           , 2007 or, in the case of any adjournment or postponement of the Meeting, no later than 5:00 p.m. (Eastern time) on the business day before the date of the reconvened Meeting. Non-registered beneficial shareholders of Novelis must seek instructions on how to complete their form of proxy and vote their common shares from their broker, trustee, financial institution or other nominee.

 

Your vote is important, regardless of the number of common shares you own. To be effective, the Arrangement must be approved by a resolution passed by at least 662/3% of the votes cast at the Meeting. Even if you plan to attend the Meeting in person, we request that you complete, sign, date and return the enclosed proxy and thus ensure that your common shares will be represented at the Meeting if you are unable to attend. If you sign, date and mail your proxy card without indicating how you wish to vote, your vote will be counted as a vote “FOR” the approval of the Arrangement and in accordance with the discretion of the persons named as proxies on any other matters properly brought before the Meeting for a vote.

 

Pursuant to the Interim Order, registered holders of common shares of Novelis have a right to dissent in respect of the Arrangement Resolution and to be paid an amount equal to the fair value of their common shares. This right is described in the Proxy Statement/Circular. See the section entitled “Dissenting Holders’ Rights” in the Proxy Statement/Circular and Annex F to the Proxy Statement/Circular. The dissent procedures require that a registered

holder of common shares who wishes to dissent must send to Novelis (1) at 3399 Peachtree Road NE, Suite 1500, Atlanta, Georgia, 30326 or (2) by facsimile transmission to (404) 814-4219 (Attention: Corporate Secretary) to be received no later than 5:00 p.m. (Toronto time) on           , 2007 (or 5:00 p.m. (Toronto time) on the day which is one business day immediately preceding the date that any adjourned or postponed meeting is reconvened), a written notice of objection to the Arrangement Resolution and must otherwise strictly comply with the dissent procedures described in this Proxy Statement/Circular. Failure to strictly comply with these dissent procedures may result in the loss or unavailability of the right to dissent.  Non-registered beneficial owners of common shares registered in the name of a broker, trustee, financial institution or other nominee who wish to dissent should be aware that only registered owners of common shares are entitled to dissent.

 

Nichole Robinson
Corporate Secretary

 

          , 2007

 

TABLE OF CONTENTS

 

 

This Proxy Statement/Circular and accompanying forms are furnished in connection with the solicitation of proxies by and on behalf of our management for use at the Meeting and any adjournment or postponement thereof and for the purposes set forth in the accompanying Notice of Meeting. Except where otherwise indicated, the information in this Proxy Statement/Circular is given as of          , 2007.

 

All currency amounts referred to in this Proxy Statement/Circular are expressed in United States dollars, unless otherwise indicated.

 

This summary highlights selected information from this Proxy Statement/Circular and may not contain all of the information that is important to you. To understand the Arrangement fully, and for a more complete description of the legal terms of the Arrangement, you should carefully read this entire Proxy Statement/Circular, the annexes attached to this Proxy Statement/Circular and the documents to which we refer. An arrangement agreement, dated as of February 10, 2007, among Hindalco, Acquisition Sub and Novelis (the “Arrangement Agreement”), is attached as Annex B to this Proxy Statement/Circular. We have included page references in parentheses to direct you to the appropriate place in this Proxy Statement/Circular for a more complete description of the topics presented in this summary.

 

Each capitalized term used in this Proxy Statement/Circular and not otherwise defined shall have the meaning set forth in the Arrangement Agreement.

 

The Parties to the Arrangement Agreement (Page 18)

 

Novelis is the world’s leading aluminum rolled products producer based on shipment volume in 2006, with total aluminum rolled products shipments of approximately 2,960 kilotonnes. With operations on four continents comprised of 33 operating plants as well as three research facilities in 11 countries as of December 31, 2006, Novelis is the only company of its size and scope focused solely on aluminum rolled products markets and capable of local supply of technically sophisticated products in all of these geographic regions. Novelis is a corporation incorporated under the laws of Canada, and its common shares are traded on the New York Stock Exchange (“NYSE”) and the Toronto Stock Exchange (“TSX”) under the symbol “NVL.” Novelis’ executive offices are located at 3399 Peachtree Road NE, Suite 1500, Atlanta, Georgia 30326 and its telephone number is (404) 814-4200.

 

Hindalco is Asia’s largest integrated primary producer of aluminum and a leading integrated producer of copper. Hindalco’s integrated operations and operating efficiency have positioned the company among the most cost-efficient aluminum producers globally. Hindalco is incorporated under the laws of India and its stock is publicly traded on the Bombay Stock Exchange (“BSE”), the National Stock Exchange of India Ltd (“NSE”) and the Luxembourg Stock Exchange (“GDR”). Hindalco’s executive offices are located at Aditya Birla Centre, S. K. Ahire Marg, Worli, Mumbai-400 030 India and its telephone number is 91-22-6652 5000 / 2499 5000.

 

Acquisition Sub is AV Aluminum Inc., a corporation incorporated under the laws of Canada. It is an indirect subsidiary of Hindalco organized solely for the purpose of facilitating the Arrangement. It has not conducted any activities to date other than activities incidental to its formation, organization and in connection with the transactions contemplated by the Arrangement Agreement.

 

The Arrangement (Page 19)

 

You are being asked to vote to approve an Arrangement Resolution providing for, among other things, the acquisition of all of the outstanding common shares of Novelis by Acquisition Sub in accordance with the Arrangement Agreement. Upon the terms, and subject to the conditions contained in the Arrangement Agreement, Acquisition Sub will become the owner of all the outstanding shares of Novelis. As a result of the

Arrangement, our common shares will cease to be publicly traded and we will become an indirect subsidiary of Hindalco.

 

Purchase Price (Page 60)

 

If the Arrangement is completed, each holder of common shares outstanding immediately prior to the Arrangement will be entitled to receive $44.93 in cash, without interest and less any required withholding taxes, for each common share.

 

Effect on Stock Options, Stock Appreciation Rights, Stock Price Appreciation Units, Performance Share Units and Deferred Share Units (Page 60)

 

At the effective time of the Arrangement, each outstanding stock option, stock appreciation right and stock price appreciation unit will (1) unconditionally vest and be transferred to Novelis for a cash payment equal to the excess, if any, of $44.93 over the exercise price per share of the respective stock option, stock appreciation right and stock price appreciation unit, as applicable, without interest and less any applicable withholding taxes and (2) be cancelled and all agreements related thereto will be terminated.

 

Each outstanding performance share unit and deferred share unit will be cancelled in exchange for a cash payment in the amount of $44.93 per performance share unit or deferred share unit, as applicable, without interest and less any applicable withholding taxes.

 

Conditions to the Arrangement (Page 61)

 

The Arrangement is subject to the satisfaction or waiver of various conditions, which include the following:

 

 

We are not obligated to effect the Arrangement unless the following conditions are satisfied or waived:

 

 

Hindalco and Acquisition Sub are not obligated to effect the Arrangement unless the following conditions are satisfied or waived:

 

 

Effective Date and Effective Time of the Arrangement (Page 60)

 

The Arrangement Agreement provides that the effective date is the date shown on the certificate of arrangement issued by the director appointed pursuant to the Canada Business Corporations Act (the “CBCA”). The effective time means the date and time of the issuance of the articles of arrangement by the director. The articles of arrangement are required by the CBCA to be filed with the director after the Final Order is made in order for the Arrangement to become effective.

 

Termination of the Arrangement Agreement (Page 63)

 

The Arrangement Agreement may be terminated and the Arrangement may be abandoned at any time prior to the filing of the Articles of Arrangement, whether before or after any approval and authorization of the Arrangement Agreement by the shareholders:

 

 

 

In certain other circumstances, as set out in the Arrangement Agreement, we will also be obligated to pay (1) the termination fee of $100 million to Acquisition Sub, or (2) reimburse the costs and expenses, to a maximum of $15 million, incurred by Hindalco and its affiliates in connection with the transactions contemplated by the Arrangement Agreement.

 

No Solicitation (Page 67)

 

The Arrangement Agreement contains non-solicitation provisions that prohibit us from soliciting or engaging in discussions or negotiations regarding a competing proposal to the Arrangement. There are exceptions to these prohibitions if we receive an unsolicited superior proposal from a third party under certain circumstances set forth in the Arrangement Agreement.

 

Recommendation of Our Board of Directors (Page 10)

 

After due discussion and due consideration, including consultation with financial and legal advisors and with senior management, our board of directors has determined that the Arrangement and the Arrangement Agreement are fair to our shareholders and are in our best interests. Accordingly, our board of directors unanimously recommends that you vote “FOR” the Arrangement Resolution to approve and adopt the Arrangement.

 

Reasons for the Arrangement (Page 27)

 

In making its recommendation that you vote “FOR” the approval of the Arrangement Resolution, our board considered a number of factors, including, among others, the following:

 

 

 

Special Meeting; Quorum; Arrangement Resolution Vote (Page 15)

 

We will hold the special meeting at the offices of King & Spalding LLP located at 1180 Peachtree Street, N.E., Atlanta, Georgia 30309 on          , 2007, beginning at 10:00 a.m., Eastern time. The holders of 25% or more of the outstanding common shares entitled to vote must be present, either in person or by proxy, to constitute a quorum at the Meeting. The approval of the Arrangement Resolution requires the affirmative vote of at least 662/3% of the votes cast for or against the Arrangement Resolution at the Meeting.

 

Opinions of Morgan Stanley and Evercore (Page 29 and Page 35 and Annex D and Annex E)

 

Morgan Stanley and Evercore delivered written opinions each dated February 10, 2007, to the effect that, as of the date of the opinions and based upon and subject to the matters stated in the opinions, the Arrangement consideration to be received by our shareholders in the Arrangement is fair, from a financial point of view, to our shareholders. The full text of the written opinions of Morgan Stanley and Evercore, setting forth the assumptions made, procedures followed, matters considered and qualifications and limitations of the review undertaken in connection with the opinions, are attached as Annex D and Annex E, respectively, to this Proxy Statement/Circular and are incorporated by reference in this Proxy Statement/Circular. You should read the opinions of Morgan Stanley and Evercore carefully and in their entirety. Morgan Stanley’s and Evercore’s written opinions are directed to our board of directors, address only the consideration to be paid in the Arrangement and do not address any other aspect of the Arrangement (including how any shareholders should vote with respect to the approval of the Arrangement Resolution or the availability of the proposed financing for the transaction).

 

Material Tax Consequences of the Arrangement (Page 52)

 

U.S. Federal Income Tax Consequences

 

For U.S. federal income tax purposes, the Arrangement will be treated as a sale of our common shares by each of our shareholders. As a result, in general, each U.S. shareholder will recognize gain or loss equal to the difference, if any, between the amount of cash received from the Arrangement and such U.S. shareholder’s

adjusted tax basis in the shares surrendered. Such gain or loss will be capital gain or loss if the common shares surrendered are held as a capital asset in the hands of such U.S. shareholder, and will be long-term capital gain or loss if the common shares have a holding period of more than one year at the time the common shares are surrendered.

 

Canadian Federal Income Tax Consequences

 

For Canadian federal income tax purposes, generally, a resident holder who holds common shares as capital property will realize a capital gain (or capital loss) equal to the amount by which the cash received by such holder, net of any reasonable costs of disposition, exceeds (or is less than) the adjusted cost base to the holder of such common shares. Generally, a non-resident holder whose common shares do not constitute “taxable Canadian property” for purposes of the Income Tax Act (Canada) and the regulations thereunder (the “Tax Act”) will not be subject to tax under the Tax Act on any gain realized on the disposition of such common shares under the Arrangement.

 

The foregoing are brief summaries of United States and Canadian federal income tax consequences only. Shareholders should read carefully the information in this Proxy Statement/Circular under the heading “Material Tax Consequences of the Arrangement,” which qualifies the summaries set forth above. Shareholders are urged to consult their own tax advisors to determine the particular tax consequences to them of the Arrangement.

 

Interests of Our Directors and Executive Officers in the Arrangement (Page 45)

 

Our directors and executive officers may have interests in the Arrangement that are different from, or in addition to, yours, including the following:

 

 

Our board of directors was aware of these interests and considered them, among other matters, in making its decisions.

 

Dissenting Holders’ Rights (Page 51)

 

Pursuant to section 190 of the CBCA, as modified by the Plan of Arrangement and the Interim Order, our shareholders have the right to dissent from the Arrangement Resolution and to receive a cash payment for the fair value of their common shares determined as of the day prior to approval of the Arrangement Resolution. The determined fair value under section 190 of the CBCA could be greater than, equal to or less than the

$44.93 in cash per share that our shareholders are entitled to receive in the Arrangement. Shareholders that wish to exercise their dissenting holders’ rights must not vote in favor of the approval of the Arrangement Resolution and must strictly comply with all of the procedures required by the CBCA, as modified by the Plan of Arrangement and the Interim Order.

 

Financing Arrangements (Page 56)

 

Hindalco estimates the total amount of funds necessary to be paid to our shareholders and holders of our other equity-based interests to complete the Arrangement is approximately $      billion. Additional funds will be required to pay fees and expenses in connection with the Arrangement, the financing arrangements and the related transactions. Additional funds may be required to refinance our existing indebtedness which may be required to be repaid, or which Hindalco may elect to repay in connection with the Arrangement. These payments are expected to be funded by equity contributions and subordinated debt financing by Hindalco and its affiliates using available cash and debt financing from financial institutions and possibly a notes offering by Novelis.

 

Hindalco has delivered to Novelis true, correct and complete copies of executed commitment letters, pursuant to which:

 

 

Pursuant to the terms of our 71/4% senior notes (“Senior Notes”), we are obligated, within 30 days of a change of control, to make an offer to purchase the Senior Notes at a price equal to 101% of their principal amount plus accrued and unpaid interest to (but excluding) the date the Senior Notes are purchased. In addition, Acquisition Sub has indicated that it may, or may cause us to, take other steps to repay, retire or redeem the Senior Notes prior to or after the closing of the Arrangement.

 

The commitment letters contemplate that, in connection with any change of control offer or other repayment, retirement or redemption of the Senior Notes, up to $800 million aggregate gross proceeds of new notes may be issued pursuant to a public offering or Rule 144A or other private placement upon the terms and conditions set forth in the commitment letters (in addition to borrowings under the incremental or replacement term loan facility). To the extent new notes are not issued at such time, borrowings by Novelis under the bridge facility described above (in addition to borrowings under the incremental or replacement term loan facilities) will be available to finance any required repurchase of the existing notes of Novelis.

 

The structure and documentation for the debt facilities has not been finalized and, therefore, the structure and terms of the financing may differ from those described in this Proxy Statement/Circular.

 

The commitments of the lenders with respect to the $2.8 billion bridge facility contemplated by the commitment letters shall terminate upon the earliest to occur of (1) execution of definitive documentation

relating to such facility by all parties thereto, (2) April 12, 2007 and (3) the date of termination of the Arrangement Agreement, unless the lenders and arrangers shall, in their discretion, agree to an extension. Once definitive documentation is executed, the bridge facility is available for a further 90 days. The commitments of the lenders with respect to the incremental facility to be entered into in connection with the amendment to Novelis’ credit agreement, the new term loan and revolving loan facility and the $800 million bridge facility contemplated by the commitment letters shall terminate upon the earliest to occur of (1) execution definitive documentation relating to such facilities by all parties thereto, (2) July 31, 2007 and (3) the date of termination of the Arrangement Agreement, unless the lenders and arrangers shall, in their discretion, agree to an extension. The facilities contemplated by the commitment letters are also subject to other customary conditions, as described in further detail under “The Arrangement — Financing the Arrangement — Debt Financing”.

 

Hindalco has agreed to use its reasonable best efforts to obtain the debt financing on the terms and conditions described in the commitment letters. The closing of the Arrangement is not conditioned on the receipt of the debt financing by Hindalco or Acquisition Sub. If all other conditions to closing of the Arrangement have been satisfied, Hindalco will be required to consummate the Arrangement regardless of whether Hindalco or Acquisition Sub has obtained debt financing on the terms and conditions described in the commitment letters, and the failure by Hindalco to consummate the Arrangement in such circumstances would constitute a breach of the Arrangement Agreement.

 

Hindalco and certain of its affiliates have agreed to make equity contributions and/or subordinated loans to a subsidiary of Hindalco in an aggregate amount of no less than $600 million which will be further contributed to Acquisition Sub in order to consummate the Arrangement and settle the consideration payable in respect thereof in full. Pursuant to discussions between Hindalco and the arrangers of the $2.8 billion bridge loan facility, it is anticipated that the bridge loan facility will be increased to $3.1 billion and that Hindalco and its affiliates’ required equity and subordinated loan contribution will be reduced from $600 million to the amount required to complete the Arrangement.

 

Regulatory Approvals (Page 56)

 

We and Hindalco will not complete the Arrangement unless we receive the regulatory approvals specified in the Arrangement Agreement as conditions to closing of the Arrangement and/or until the expiration of all applicable waiting periods, including antitrust approvals under the Competition Act (Canada), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), the European Union or the relevant antitrust authorities in the applicable European Union Member States, as well as approval under the Investment Canada Act and the expiration of all applicable waiting periods under such laws.

 

This Proxy Statement/Circular is provided in connection with the solicitation of proxies by our management for use at the Meeting. In this Proxy Statement/Circular, “you” and “your” refers to the shareholders of Novelis.

 

The following are some questions regarding the Meeting and the proposed Arrangement that you may have and answers to those questions. These questions and answers are not meant to be a substitute for the information contained in the remainder of this Proxy Statement/Circular. We urge you to read this entire Proxy Statement/Circular, its annexes and the documents referred to or incorporated by reference in this Proxy Statement/Circular before making any decision.

 

We anticipate that this Proxy Statement/Circular and the accompanying proxy card will first be mailed to our shareholders on or about          , 2007. Except where otherwise indicated, the information contained herein is provided as of          , 2007, and all dollar amounts are in U.S. dollars.

 

 

 

Novelis is a corporation incorporated under the laws of Canada. The solicitation of proxies and the transactions contemplated in this Proxy Statement/Circular involve securities of a Canadian corporation and are being effected in accordance with Canadian corporate and Canadian and U.S. securities laws. Shareholders should be aware that requirements under Canadian laws may differ from requirements under U.S. corporate and securities laws.

 

Shareholders should be aware that the transaction contemplated in this Proxy Statement/Circular may have tax consequences both in the United States and Canada. Such consequences for shareholders who are resident in, or citizens of, the United States or Canada may not be fully described herein. See “The Arrangement — Material Tax Consequences of the Arrangement”

 

Please read the information in this Proxy Statement/Circular carefully, and if you require assistance, consult your financial, legal or other professional advisor.

This Proxy Statement/Circular, and the documents to which we refer to in this Proxy Statement/Circular, contain forward-looking statements based on current expectations, estimates, forecasts and projections about the industry in which we operate, and beliefs and assumptions made by our management that are protected under applicable securities laws. Such statements include, in particular, statements concerning possible or our

assumed future results of operations, the expected completion and timing of the transactions contemplated by the Arrangement Agreement and other information relating to the Arrangement and the Arrangement Agreement. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are based on beliefs and assumptions of our management, which in turn are based on currently available information. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed, implied or forecasted in such forward-looking statements. We do not intend, and we disclaim any obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

You should read these forward-looking statements carefully as they involve known and unknown risks over which we have no control. Those risks include, without limitation:

 

 

The above list of factors is not exhaustive. These and other factors are discussed in more detail under “Item 1A. Risk Factors” our Annual Report on Form 10-K for the year ended December 31, 2006. See “Additional Information” on page 79.

 

This Proxy Statement/Circular is furnished in connection with the solicitation of proxies in connection with the Meeting.

 

We will hold the special meeting at the offices of King & Spalding LLP located at 1180 Peachtree Street, N.E., Atlanta, Georgia 30309 on          , 2007, at 10:00 a.m., Eastern time.

 

At the Meeting, we will ask you to (1) consider, adopt and approve the Arrangement Resolution and thereby approve the Arrangement Agreement and the transactions contemplated thereby and (2) transact any other business that is properly brought before the Meeting. We are not aware of any additional business that may come before the Meeting.

 

Our board of directors unanimously (1) approved and adopted the Arrangement Agreement and (2) determined that the Arrangement is fair to the Novelis shareholders and is in our best interest. Accordingly, our board of directors unanimously recommends that you vote “FOR” the Arrangement Resolution.

 

Only holders of record of our common shares on the close of business on          , 2007, the record date, are entitled to notice of and to vote at the Meeting. On the record date,      common shares were issued and outstanding and held by approximately      holders of record. Each holder of record of our common shares will be entitled to one vote per common share at the Meeting on the proposal to approve the Arrangement Resolution.

 

The holders of 25% or more of the outstanding common shares entitled to vote must be present, either in person or by proxy, to constitute a quorum at the Meeting. If a quorum is not present at the Meeting, the holders of the common shares represented at the Meeting may adjourn the special meeting to solicit additional proxies. If a quorum is not present at the Meeting, we expect to adjourn or postpone the Meeting to solicit additional proxies.

 

If you are a non-registered shareholder (that is, if your common shares are held in the name of an intermediary, such as a bank, broker, trust company or other nominee), your broker or other nominee will provide you with separate instructions on how to vote your common shares.

 

The approval of the Arrangement Resolution requires the affirmative vote of at least 662/3% of the votes cast at the Meeting.

 

To vote your common shares, you should mark, sign, date and return the enclosed proxy in the enclosed postage-paid envelope. Your proxy card must be received by us before 5:00 p.m. (Eastern time) on the business day before the date of the Meeting or, in the case of any adjournment or postponement of the Meeting, no later than 5:00 p.m. (Eastern time) on the business day before the date of the reconvened Meeting. Voting your proxy does not limit your right to vote in person should you decide to attend the Meeting. If your common shares are held in the name of a bank, broker or other nominee, you will be provided voting instructions from the nominee and, in order to vote at the Meeting, you must obtain a legal proxy, executed in your name, from the nominee.

 

If you return your proxy card and it is completed, signed and dated, your common shares will be voted at the Meeting in accordance with your instructions. If you return your proxy card and it is unsigned, then your vote cannot be counted. If you return your proxy card and it is signed and dated, but you do not fill out the voting instructions on the proxy card, the common shares represented by your proxy will be voted “FOR” the approval of the Arrangement Resolution and in accordance with the discretion of the persons named as proxies on any other matters properly brought before the Meeting for a vote.

 

If you hold your common shares in your name, you have the right to revoke your proxy by delivering a written notice, signed by you or your attorney as authorized in writing, or if you are a corporation, by an officer or attorney of the corporation duly authorized, to:

 

 

You may also revoke your proxy in any other manner permitted by law. Revocation of your proxy, without any further action, will mean your common shares will not be voted at the Meeting or counted towards satisfying the quorum requirements.

 

If you have instructed your broker to vote your common shares, you must follow directions received from your broker to change your vote. If your common shares are held in the name of a bank, broker or other nominee, you cannot vote your common shares by returning a proxy card directly to us or by voting in person at the Meeting, unless you obtain a legal proxy from your bank or broker.

 

Our management is soliciting your proxy. In addition to the solicitation of proxies by use of mail, officers and other employees of Novelis may solicit the return of proxies by personal interview, telephone, e-mail or facsimile. We will not pay additional compensation to our officers and employees for their solicitation efforts. We will request that brokerage house and other custodians, nominees and fiduciaries forward solicitation materials to the beneficial owners of the common shares registered in their names. We will bear all costs of preparing, assembling, printing and mailing the Notice of Special Meeting of Shareholders, this Proxy Statement/Circular, the enclosed letter of transmittal and any additional materials, as well as the cost of forwarding solicitation materials to the beneficial owners of common shares and all other costs of solicitation.

 

Georgeson is acting as our proxy solicitation agent, for which it will be paid a fee of approximately $      plus reimbursement for reasonable expenses.

 

We and Hindalco have engaged CIBC Mellon to act as Depositary for the receipt of certificates in respect of common shares and related letters of transmittal deposited pursuant to the Arrangement. The Depositary will receive reasonable and customary compensation for its services in connection with the Arrangement, will be reimbursed for certain out-of-pocket expenses and will be indemnified by Novelis against certain liabilities under applicable securities laws and expenses in connection therewith.

 

No fee or commission is payable by any shareholder who transmits its common shares directly to the Depositary. Except as set forth above, Novelis will not pay any fees or commissions to any broker or dealer or any other person for soliciting deposits of common shares pursuant to the Arrangement.

 

The letter of transmittal contains important information relating to the Arrangement and how to submit your common shares and should be reviewed carefully.

 

If you are a registered shareholder, you should have received with this Proxy Statement/Circular a letter of transmittal. In order to receive the payment for common shares, registered shareholders must complete and sign the letter of transmittal enclosed with this Proxy Statement/Circular and deliver it and the other documents required by it to the Depositary in accordance with the instructions contained in the letter of transmittal. You can request additional copies of the letter of transmittal by contacting the Depositary. The letter of transmittal is also available at the EDGAR and SEDAR websites at www.sec.gov and www.sedar.com, respectively.

 

If you are a non-registered shareholder, you should carefully follow the instructions from the broker, investment dealer, bank or other intermediary that holds common shares on your behalf in order to submit your common shares.

 

Where a certificate for our common shares has been destroyed, lost or stolen, the registered shareholder of that certificate should immediately contact CIBC Mellon. A replacement certificate will be issued upon the registered shareholder satisfying our requirements and the requirements of our transfer agent relating to replacement common share certificate(s).

 

Holders of outstanding stock options (“Options”), stock appreciation rights (“SARs”), stock price appreciation units (“SPAUs”), performance share units (“PSUs”) and deferred share units (“DSUs”) need not complete any documentation to receive the cash consideration for the securities held by them (other than common shares).

 

Shareholders who have questions regarding the materials, need assistance voting their common shares or require additional copies of the Proxy Statement/Circular or proxy card, should contact or call (toll-free):

 

Georgeson Inc.

17 State Street, 10th Floor

New York, NY 10004

Toll-free at (866) 834-6791

 

We are not currently aware of any business to be acted upon at the Meeting other than the matters discussed in this Proxy Statement/Circular. Under the CBCA, business transacted at the Meeting is limited to matters specifically designated in the Notice of Special Meeting of Shareholders, which is provided at the beginning of this Proxy Statement/Circular. If other matters do properly come before the Meeting, we intend that common shares represented by properly submitted proxies will be voted by the persons named as proxies on the proxy card in accordance with their discretion.

 

In addition, the grant of a proxy will confer discretionary authority on the persons named as proxies on the proxy card to vote in accordance with their best judgment on procedural matters incident to the conduct of the Meeting. If the persons named as proxies on the proxy card are asked to vote for matters incidental to the conduct of the Meeting, such persons will have the authority to vote in their discretion on such matters.

 

Novelis Inc.

 

Novelis is the world’s leading aluminum rolled products producer based on shipment volume in 2006, with total aluminum rolled products shipments of approximately 2,960 kilotonnes. With operations on four continents comprised of 33 operating plants including three research facilities in 11 countries as of December 31, 2006, Novelis is the only company of its size and scope focused solely on aluminum rolled products markets and capable of local supply of technically sophisticated products in all of these geographic regions. Novelis is a corporation incorporated under the laws of Canada, and its common shares are traded on the New York Stock Exchange and the Toronto Stock Exchange under the symbol “NVL.” PricewaterhouseCoopers LLP is Novelis’ independent registered public accounting firm. Novelis’ executive offices are located at 3399 Peachtree Road NE, Suite 1500, Atlanta, Georgia 30326 and its telephone number is (404) 814-4200.

 

Hindalco

 

Hindalco Industries Limited is Asia’s largest integrated primary producer of aluminum and a leading integrated producer of copper. Hindalco’s integrated operations and operating efficiency have positioned the company among the most cost-efficient aluminum producers globally. Hindalco is a corporation organized under the laws of India and its stock is publicly traded on the BSE, the NSE and the GDR. Hindalco’s executive offices are located at Aditya Birla Centre, S. K. Ahire Marg, Worli, Mumbai-400 030 India and its telephone number is 91-22-6652 5000 / 2499 5000.

 

Acquisition Sub

 

Acquisition Sub is AV Aluminum Inc., a corporation incorporated under the laws of Canada. It is an indirect subsidiary of Hindalco, organized solely for the purpose of facilitating the Arrangement. It has not conducted any activities to date other than activities incidental to its formation and organization and in connection with the transactions contemplated by the Arrangement Agreement.

 

Since our inception as a public company in January 2005 following our spin-off from Alcan Inc., we have considered a variety of strategic alternatives, including the continued execution of our strategic operating plan, value-creating corporate transactions, such as acquisitions or joint ventures, and divestitures of non-core assets.

 

In late 2005, our former chief executive officer, Mr. Brian Sturgell, was contacted by the senior management of a company, which we refer to as “Company A”, regarding their interest in better understanding the business of Novelis and the aluminum rolled products industry. Company A referred to past investments and acquisitions it had made in industrial companies, and a desire to develop a relationship with us. On January 31, 2006, Mr. Sturgell met with members of the senior management of Company A and described our business and industry to them. Mr. Sturgell agreed to maintain contact with and meet with Company A representatives later in 2006.

 

In April 2006, we were contacted by a financial advisor for a company, which we refer to as “Company B”, concerning its client’s interest in a potential business combination or other negotiated transaction with us. We made arrangements to meet with and understand Company B’s potential interest in our company. In April 2006, our senior management also contacted Company A in order to further discuss the development of a relationship between the two companies and the potential for Company A to participate in an investment being contemplated by us.

 

On May 3, 2006, we entered into a mutual confidentiality agreement with Company A. After preliminary discussions with Company A in early May 2006, Company A informed us that, while they remained interested in our company and the aluminum rolled products industry, they were not prepared to enter into a transaction with us at that time. No further discussions were held with Company A until October 2006.

 

During May and June 2006, we met on separate occasions with representatives of Company B to discuss possible strategic transactions. During these meetings, no non-public information was exchanged and our senior management explained to representatives of Company B our concern that our ongoing financial restatement and review process had resulted in a decline in our common share price, and we were of the belief that our share price was not reflective of the value of our company. However, as a result of these ongoing discussions, we entered into a mutual confidentiality agreement with Company B on June 9, 2006. The confidentiality agreement included a customary standstill provision.

 

At a meeting of our board of directors on June 29, 2006, members of our senior management briefed our board on discussions with Company B. The board of directors instructed our senior management to continue discussions with Company B and to keep the board of directors apprised of developments in the discussions.

 

On June 30, 2006, members of our senior management met with senior management from Company B to discuss the proposed structure of a potential transaction with Company B, including a merger transaction, an all cash purchase of Company B by us, or an all cash purchase of us by Company B. Company B also discussed their preliminary view of the potential synergies that could be realized in the combination of our two companies. We reiterated to Company B, that, in our management’s view, our share price at the time did not reflect the ongoing value and prospects of our company. After this meeting, we agreed to continue discussions with Company B; however, we had limited contact with Company B until August 2006 as it subsequently became apparent that Company B was engaged in the process of being acquired by a third party. As of the close of trading on June 30, 2006, the market price of our common shares was $21.58 per share.

 

In July 2006, we received a letter from Mr. Debu Bhattacharya, the managing director of Hindalco, requesting a meeting with our senior management. A meeting took place on August 2, 2006 between our senior management and representatives from Hindalco and the associated Aditya Birla Group of companies, during which Hindalco indicated that they had performed a significant evaluation of Novelis based upon publicly available information, and proposed a potential all cash acquisition of us by Hindalco. Our senior management indicated their view that our common share price did not reflect the future value of our stand alone strategic plan, but that we would consider Hindalco’s position and communicate with them after further consideration of the meeting. The parties did not exchange any non-public information at the meeting.

 

We formally engaged King & Spalding LLP, who we refer to as King & Spalding, to serve as our legal advisors and Morgan Stanley to serve as our financial advisors in connection with our potential alternatives in July and September 2006, respectively.

 

On August 5, 2006, Mr. Bhattacharya sent a letter to Mr. Sturgell outlining Hindalco’s proposal to acquire us in an all-cash transaction, which he stated contemplated the payment of a significant premium above our then current share price. No specific price was referenced by Mr. Bhattacharya in the letter.

 

During the evening of August 6, 2006, the chief executive officer of Company B contacted Mr. Sturgell to inform us that Company B was entering into an agreement to sell itself to a third party, which we refer to as Company B’s parent. Company B entered into the definitive acquisition agreement the next day. In early September 2006, the financial advisors for Company B, as was permitted by their acquisition agreement, contacted Morgan Stanley to inquire whether we were interested in acquiring Company B. Our senior management, in consultation with Morgan Stanley, evaluated the opportunity and concluded that at that time we were not interested in acquiring Company B at or above the per share price contemplated in Company B’s definitive acquisition agreement. At the direction of our senior management, Morgan Stanley reported this conclusion to Company B’s financial advisors.

 

On August 7, 2006, Mr. Sturgell responded to Mr. Bhattacharya’s letter of August 5, 2006 and restated his view that our then current common share price was not consistent with the long term value of the company given the capital markets’ focus on the non-operating financial difficulties related to the review and restatement of our financial statements for the first and second quarters of 2005 and the resulting delay in filing certain other periodic reports with the SEC. In subsequent communications between Mr. Bhattacharya and Mr. Sturgell in August 2006, we agreed to continue discussions with Hindalco, but expressed that our board of directors was focused on pursuing our current strategic plan.

 

At a meeting of our board of directors on August 23, 2006, our board discussed ongoing business initiatives and possible strategic alternatives. At the meeting, Morgan Stanley presented a preliminary capital markets review of Novelis. Following a brief overview of the fiduciary duties of directors and a review of the decision process a board must undertake in the face of an unsolicited takeover bid, Mr. Les Parrette, our general counsel, then introduced to the board our Canadian legal counsel, Osler, Hoskin & Harcourt LLP, who we refer to as Osler. Osler then reviewed with our board our takeover preparedness generally and our board’s

fiduciary duties should an offer be received. At this meeting, the board also instructed our senior management to continue discussions with Hindalco and to keep the board apprised should there be further developments in the discussions.

 

On August 28, 2006, a meeting of our board of directors took place during which our directors accepted Mr. Sturgell’s resignation as chief executive officer. Mr. William Monahan, the chairman of our board of directors, was appointed as interim chief executive officer, and our board established an office of the chairman comprised of Mr. Blechschmidt, Mr. Clarence Chandran and Mr. Monahan. Following this meeting, the board engaged Faegre & Benson LLP, who we refer to as Faegre & Benson, to act as special legal counsel to the board relative to its observance of its fiduciary duties.

 

The chief executive officer of Company B contacted Mr. Monahan on August 28, 2006, and, referencing the resignation of Mr. Sturgell, reiterated Company B’s interest in pursuing a transaction with us. Mr. Monahan also spoke with Mr. Bhattacharya on August 29, 2006, and Mr. Bhattacharya also confirmed Hindalco’s continuing interest in pursuing a transaction with us.

 

On September 12, 2006, senior management of Company B contacted Mr. Monahan via telephone, and indicated that, subject to the completion of its acquisition by Company B’s parent, Company B would be willing to pay $26.00 to $26.50 per share in cash to acquire all of our common shares. As of the close of trading on September 12, 2006, the market price of our common shares was $21.50. Mr. Monahan responded that he would consider the proposal and respond to Company B. After discussing the proposal with Messrs. Blechschmidt and Chandran and Morgan Stanley, Mr. Monahan called senior management of Company B on September 14, 2006 and stated that, in his view, the proposed range of consideration failed to reflect the stand-alone value of our company and did not represent a meaningful premium to our common share price at the time. The parties agreed that Mr. Steven Fisher, our vice president, corporate development, and a designated member of Company B’s senior management would begin discussions to determine if Company B could improve their indicative bid and meetings between our companies were scheduled for early October 2006.

 

On September 13, 2006, Messrs. Blechschmidt, Monahan, Chandran and Fisher met with representatives of Hindalco and the Aditya Birla Group of companies to further discuss a possible sale of us to Hindalco. During this meeting there was no indication of the amount that Hindalco would be willing to pay in a possible acquisition, but representatives of Hindalco and the Aditya Birla Group of companies reiterated that the amount contemplated a payment of a significant premium above our trading price and stated that Hindalco would be able to provide an indication of price by mid-October 2006, following further meetings between the two companies.

 

On September 15, 2006, at a meeting of our board of directors, Messrs. Monahan and Fisher updated the board on the discussions with Company B and Hindalco. At this meeting, our board of directors instructed our senior management to continue discussions with Company B and Hindalco and to keep the board apprised should there be further developments in these discussions. The board also directed Morgan Stanley and management to prepare an information packet about us and to deliver such packet to Company B and Hindalco.

 

On September 26, 2006, we entered into a mutual confidentiality agreement with Hindalco in connection with a possible negotiated transaction. Pursuant to the terms of the confidentiality agreement, Hindalco was subject to a customary standstill provision.

 

The morning of September 29, 2006, our management participated in a teleconference call with investors and equity research analysts to provide guidance on our estimated results for 2006 and 2007 and to provide an update on our management’s projected timing for becoming current with our SEC filings. Our closing share price on September 29, 2006 of $25.59 was 11% higher than the previous day’s closing price.

 

Morgan Stanley and our senior management prepared and delivered the information packet, containing business and financial information about us, to Hindalco and to Company B on October 1, 2006 and October 3, 2006, respectively.

 

On October 5, 2006, members of our senior management and Morgan Stanley met with senior management of Company B and its financial advisor to discuss our business, results of operations and financial outlook.

 

On October 19, 2006, members of our senior management and Morgan Stanley met with representatives of Hindalco to discuss their review of the information provided in our information packet.

 

On or about October 19, 2006, at the request of our senior management, Morgan Stanley contacted Company A to inquire as to whether Company A was interested in pursuing a strategic transaction with us. Company A responded to Morgan Stanley on October 24, 2006, indicating that they were interested in conducting preliminary due diligence regarding a transaction with us. Accordingly, on October 24, 2006, we entered into a letter agreement with Company A amending the confidentiality agreement with Company A that we had entered into on May 3, 2006. The amendments to the confidentiality agreement included the insertion of a customary standstill provision.

 

Separately, on October 24, 2006, Mr. Monahan sent a letter to Hindalco requesting clarification of their position in relation to an acquisition of us and requested they provide a non-binding bid proposal by early November 2006.

 

At a meeting of the board on October 25, 2006, Mr. Fisher updated our board of directors on the status of communications with Company A, Company B and Hindalco.

 

On November 3, 2006, members of our senior management and Morgan Stanley provided Company A with an information packet about us and met with Company A’s chief executive officer and other senior managers of Company A to discuss our business, results of operations and financial outlook and a potential transaction with Company A.

 

We continued our discussions with Company B throughout November 2006. During a meeting with our senior management, Morgan Stanley and the senior management of Company B, Company B stated that it could not provide an indicative bid until completion of its acquisition by Company B’s parent, which was scheduled to take place in December 2006. However, Company B stated that its indicative bid could be higher than $30.00 per share in cash. We entered into a confidentiality agreement with Company B’s parent dated November 14, 2006, which contained a customary standstill provision.

 

Messrs. Monahan, Chandran, Fisher and Morgan Stanley met with senior management of Hindalco and representatives of the Aditya Birla Group of companies on November 8, 2006, during which Hindalco provided an indicative non-binding bid of $28.50 to $31.30 per share in cash. Following correspondence between Mr. Bhattacharya and Mr. Monahan on November 9, 2006, and further review by Hindalco of information that it had received from us, Mr. Bhattacharya indicated that Hindalco would adjust its indicative bid to $31.30 per share in cash. Mr. Monahan responded that Hindalco’s proposed price would, in his view, need to be further increased in order to be acceptable to us, but that we would continue our discussions with Hindalco. As of the close of trading on November 9, 2006, the market price of our common shares was $24.91 per share.

 

At a meeting of our board of directors on November 17, 2006, in order to provide for more efficiency in the bid process, our board formed an ad hoc committee of the board to assist the board and management in evaluating a possible transaction. Mr. Blechschmidt, Mr. Chandran, Mr. David Fitzpatrick and Mr. John Watson were appointed to the ad hoc committee. The ad hoc committee also determined at this time that Faegre & Benson would act as legal counsel to the ad hoc committee, as well as the board, in connection with any possible transaction.

 

At a meeting of the ad hoc committee of the board on November 20, 2006, Mr. Monahan provided an update on the status of the potential sale process, including our recent discussions with each of Company A, Company B and Hindalco.

 

On November 28 and 30, 2006, the ad hoc committee of our board met and Mr. Monahan provided an update on the status of discussions with each of Company A, Company B and Hindalco. Morgan Stanley reviewed with the ad hoc committee a draft of the materials they intended to present at the upcoming meeting of the board of directors on December 6 and 7, 2006. Separately, on that day our senior management met with representatives of Company B to conduct management presentations.

 

On December 5, 2006, Company A contacted Morgan Stanley and provided an indicative offer of $32.50 per share in cash. Company A proposed conducting due diligence during December 2006 and providing a more detailed proposal in early January 2007.

 

A meeting of our board of directors was held on December 6 and December 7, 2006. Morgan Stanley presented to our board its preliminary analysis of our stand-alone strategic plan and its views regarding the valuation of our company. The board of directors discussed the presentation with Morgan Stanley, including the company’s valuation in the capital markets and a review of risk factors related to our strategic plan. In light of the risks and challenges identified in our current strategic plan, our board of directors considered whether a change of control transaction may be in our best interests and the best interests of our shareholders. Morgan Stanley and Mr. Fisher also updated the board on the status of the sale process and discussed whether additional potential bidders should be approached by us. Morgan Stanley expressed its view that the bidders that were currently involved in the sale process represented the three most likely acquirors of our company and a competitive process could be achieved with these bidders. The board concurred with Morgan Stanley’s assessment and concluded that we should continue to monitor the process to determine if other bidders should be invited to participate in the sale process. Following further discussion, our board of directors instructed our senior management to continue its work to build its strategy to continue as an independent company and to simultaneously continue discussions with each of the bidders. At the meeting, the board was also given a brief summary of significant regulatory and contractual consents and approvals and other material impediments to a change of control transaction.

 

Throughout December, each of the three bidders continued to conduct business, financial and operational due diligence, including visits to certain of our sites.

 

On December 12, 2006, at a meeting of our board of directors, the board and Faegre & Benson agreed that in light of the increased frequency of the meetings of the board of directors to discuss the status of the proposed sale process, further meetings of the ad hoc committee of the board would be duplicative. Accordingly, at that time the board resolved to dissolve the ad hoc committee.

 

After completion of the acquisition of Company B by Company B’s parent, on December 19, 2006 Messrs. Monahan and Fisher and Morgan Stanley met with representatives of Company B during which Company B provided a non-binding indicative bid of $32.00 per share in cash and requested that we negotiate with Company B exclusively. Mr. Monahan stated to Company B that its non-binding indicative bid was not sufficient to distinguish Company B from the other bidders, and we would not agree to negotiate exclusively with them. On that same day, a meeting of the board of directors took place, during which Mr. Monahan updated the board on the status of discussions with each of the potential bidders and senior management answered the board’s questions concerning the transaction process, including inquiries related to contractual and other legal and regulatory impediments to pursuing a transaction with the bidders and whether we should approach other possible bidders. Our board of directors instructed senior management to continue to pursue discussions with each of Company A, Company B and Hindalco and to keep our board apprised of developments in the discussions.

 

On December 22, 2006, Morgan Stanley sent a bid process letter to each of Company B and Hindalco informing them that their final bids would be due at the end of January 2007. On December 26, 2006, we granted the bidders access to an on-line data room containing further information about our business and operations.

 

On December 28, 2006, at a meeting of our board of directors, Mr. Fisher updated the board on the progress of the potential transaction with each of Company A, Company B and Hindalco. Also at this meeting,

our board appointed Mr. Blechschmidt as acting chief executive officer, replacing Mr. Monahan, and dissolved the office of the chairman of the board, effective January 2, 2007. Mr. Monahan remained as chairman of our board of directors.

 

On January 3, 2007, Company A delivered a letter to us providing a non-binding indicative bid of $32.50 per share in cash. Company A stated their proposal did not have any financing conditions and that they felt there were limited to no regulatory issues related to the acquisition of us by Company A. The letter also stated that Company A required compensation for its time, effort and expenses, including its due diligence expenses, to be incurred if they continued in the process and were not the successful bidder.

 

In a series of conversations between Company A, senior management and Morgan Stanley, Company A indicated that it may be willing to increase its non-binding indicative bid from $32.50 per share in cash, but that it required the implementation of a fee arrangement as referred to in their letter of January 3, 2007 to continue their investigation of a transaction.

 

On January 5, 2007, Messrs Blechschmidt and Fisher had a conversation with representatives of Company A regarding their proposed fee arrangement and were informed by representatives of Company A that it would not continue in the process unless some form of fee arrangement was implemented.

 

On January 4 and January 5, 2007, members of our senior management met with representatives of Company B for a series of management presentations. On the evening of January 4, 2007, Company B’s parent contacted Morgan Stanley and requested that they be permitted to add another financial sponsor to their buying group in order to improve the competitiveness of their bid proposal. After consultation with Morgan Stanley, our senior management approved Company B’s request. During the week of January 7, 2007, Company B continued to conduct operational due diligence and visited certain of our operating plants.

 

On January 8, 2007, at a meeting of our board of directors, Mr. Blechschmidt updated the board on his discussions with representatives of Company B and the board discussed the terms of Company A’s fee proposal. In the discussion, it was noted that retaining Company A in the process was important, in view of (1) the significance of maintaining the competitive nature of the sale process, (2) the attractiveness of Company A’s indicative offer of $32.50 per share in cash relative to the prices indicated by the other two interested parties, which were in the range of $31.30 to $32.00 per share in cash, and a willingness of Company A to consider a higher price depending upon the results of its due diligence investigation and (3) the likely degree of certainty of closing in a transaction with Company A and the time frame within which Company A could close a transaction compared to certain other bidders. After further discussion, our board agreed that senior management should continue their negotiation with Company A, with a view towards reaching agreement on the terms of Company A’s continued involvement in the sale process.

 

On January 12, 2007, we convened a meeting of our board of directors, during which Morgan Stanley presented a revised analysis of our stand-alone plan based on management’s latest financial projections. Following further discussion with senior management and Morgan Stanley, our board agreed that we should continue to explore the possibility of our entering into a change of control transaction. Mr. Blechschmidt then provided an update on the progress of discussions with each of Company A, Company B and Hindalco.

 

On January 12, 2007, Company A sent us a letter containing a revised non-binding, indicative proposal of $33.00 per share in cash. Company A’s proposal reiterated their request for compensation for their time, effort and expenses to continue their evaluation of a transaction. On January 13, 2007, after further confirmation that Company A was unwilling to proceed any further in the sale process without an agreement to compensate it for its time, effort and expense incurred in the process, we reached an oral agreement with Company A providing for the payment of a total fee of up to $20 million in order to assure that Company A would continue to participate in the sale process through February 7, 2007. We executed a formal fee agreement with Company A on January 17, 2007.

 

On January 17, 2007, Morgan Stanley distributed an updated bid process letter to Company A, Company B and Hindalco. The updated bid process letter required that each bidder’s final binding proposal be submitted to Morgan Stanley on Wednesday, February 7, 2006.

 

At a meeting of our board of directors on January 22, 2007, Mr. Blechschmidt updated our board on the progress of discussions with Company A, Company B and Hindalco. Presentations were made concerning the potential impediments to our ability to enter into a change of control transaction, an overview of the potential regulatory review process involved and an analysis of the related regulatory considerations relevant to each bidder. Our board also discussed the potential for significant regulatory issues raised by a transaction with Company B.

 

On January 25, 2007, media reports indicated that the Aditya Birla Group of companies was exploring the possibility of acquiring us for a total transaction value of $5 to $6 billion. On January 26, 2006, our common share price increased significantly on heavy volume until trading was halted on both the NYSE and the TSX. Shortly following the trading halt, we announced that we were in discussions with various parties that could lead to our potential sale. We also stated that there could be no assurance that any transaction would occur or as to the timing of any such potential transaction.

 

At a meeting of our board of directors on January 31, 2007, Mr. Blechschmidt described the recent media speculation concerning our proposed change of control transaction and the resulting press release we issued on January 26, 2007. After discussions regarding the significant increase in the trading price of our common shares following these events, the board approved engaging Evercore to act as an additional financial advisor to provide an opinion as to whether any consideration received in connection with any possible transaction was fair to our shareholders from a financial point of view. Mr. Fisher also described the status of discussions with each of Company A, Company B and Hindalco at the meeting.

 

On February 5, 2007, Company B’s chief executive officer contacted Mr. Blechschmidt, proposing a stock-for-stock combination with Company B instead of an all cash acquisition of us by Company B. On February 6, 2007, we received a letter from Company B confirming its proposal of a stock-for-stock transaction. The letter from Company B also stated that based on Company B’s analysis and assumptions, including assumptions relating to synergies, its proposed stock-for-stock transaction could result in a value of $45.00 per share to our shareholders in the form of continued ownership in the combined company. Later on the same day, Company B provided additional information about its proposal in an email to us that, based on Company B’s analysis and assumptions, ascribed a purported value to our shareholders in the range of as high as $49.00 to $62.00 per share.

 

A meeting of our board of directors was also held on February 6, 2007, and the board discussed Company B’s revised proposal. Morgan Stanley and the board noted that the value ascribed to Company B’s proposal by Company B relied upon achieving significant synergies in the operations of the two companies, at a level not previously discussed by Company B with us or by us and in circumstances where the risk of achieving these synergies would be borne, in part, by our shareholders. In addition, the board of directors noted that pursuing a potential stock-for-stock combination with Company B would take substantial time, due to the requirement for us to perform due diligence on Company B and the increased complexity of negotiating a stock-for-stock transaction. It was also discussed that Company B’s proposed transaction presented significant regulatory issues and uncertainties. Based on these discussions, the board of directors instructed senior management to respond to Company B by indicating that at this time the board did not intend to alter the bid process in light of Company B’s proposal, and that Company B’s proposal would be evaluated in the context of any proposals we received.

 

On February 7, 2007, we received proposals from Hindalco and Company A. Hindalco indicated that it was willing to pursue a transaction for a purchase price of $45.20 per share in cash, subject to customary regulatory approvals and no financing condition. Company A indicated that it was willing to pursue a transaction for a purchase price of $33.25 per share in cash, subject to customary regulatory approvals, certain third party consents and no financing condition.

 

On February 8, 2007, Morgan Stanley contacted Hindalco and Company A and asked, in each case, whether the bid submitted represented their best and final offer. Both parties confirmed to Morgan Stanley that they were unwilling to increase their price.

 

On that same day, King & Spalding and Torys LLP, Hindalco’s legal counsel and who we refer to as Torys, discussed the key terms of the Arrangement Agreement, financing commitments and related documentation with respect to Hindalco’s proposal. Based on these discussions, King & Spalding and Novelis delivered a revised draft of the Arrangement Agreement and related documentation to Torys and Hindalco during the evening of February 8, 2007.

 

Novelis and King & Spalding also discussed the Arrangement Agreement and related issues with Company A and its representatives on February 8, 2007 and February 9, 2007.

 

King & Spalding and Torys held further discussions on February 9, 2007 regarding the definitive documentation related to a proposed transaction with Hindalco and Hindalco’s financing. Based on these discussions, most substantive issues were resolved and legal counsel expressed the view that a definitive agreement could be reached between the parties within a short timeframe.

 

In addition, on February 9, 2007 Company B delivered a second letter to us reiterating its interest in pursuing a potential stock-for-stock acquisition of Company B by us and re-asserting a purported valuation for our shareholders in the range of $49.00 to $62.00 per share. The proposal suggested further synergies were available in addition to those previously asserted. Following receipt of this letter, our senior management and Morgan Stanley again reviewed Company B’s proposal of a potential stock-for-stock transaction. Our senior management and Morgan Stanley discussed Company B’s revised proposal, noting that the significant uncertainty of achieving the purported value had not been mitigated and pursuing the proposal could put at risk the more certain value to our shareholders of the all-cash bids we had received.

 

During the evening of February 9, 2007, Mr. Blechschmidt contacted Mr. Bhattacharya to explain that he was prepared to present Hindalco’s proposal to our board of directors, provided that the parties were able to complete draft documentation and reach agreement on all significant deal points in advance of our board meeting scheduled for the next day. During the conversation, Mr. Blechschmidt disclosed the terms of the fee letter that we had entered into with Company A. After discussion, Mr. Blechschmidt and Mr. Bhattacharya agreed to present the transaction to their respective boards at a price of $44.93 per share in cash, reflecting a $0.27 reduction of Hindalco’s original bid for the cost of the fee payable to Company A.

 

On the morning of February 10, 2007, King & Spalding and Torys held further discussions on the definitive documentation related to the transaction and reached agreement on all significant deal points.

 

Our board of directors met on February 10, 2007 at the offices of King & Spalding.

 

Osler and Faegre & Benson reviewed with the directors their fiduciary duties with respect to the proposed transaction.

 

Mr. Blechschmidt explained that Company A was unwilling to increase their bid proposal. Mr. Blechschmidt also noted that Company A’s proposed Arrangement Agreement terms, as reflected in its submitted mark-up of the Arrangement Agreement and in discussions with legal counsel, were significantly more conditional in nature than those submitted by Hindalco.

 

Mr. Blechschmidt then briefed our board of directors on the proposal received from Company B. Morgan Stanley and the board noted and discussed again the significant assumptions in Company B’s proposal, including the significant synergies assumed. The board and Morgan Stanley discussed the risk to our shareholders that such value would not be reflected in the market price of the combined company and therefore not realized by our shareholders. In addition, the board discussed that pursuing Company B’s proposed transaction would take substantial time, presented potentially significant regulatory issues, and might place at risk the ability to consummate an all cash transaction with Company A or Hindalco.

 

Mr. Blechschmidt then discussed Hindalco’s proposal. In particular, he noted the premium offered by Hindalco’s bid over both Company A’s bid and the current trading price to our common shares. At Mr. Blechschmidt’s request, King & Spalding reviewed with the board the terms of Hindalco’s proposed Arrangement Agreement. Following this discussion, Mr. Blechschmidt noted that Hindalco’s proposal did not contain a financing condition, posed very limited regulatory concerns and provided a relatively high degree of deal certainty.

 

Morgan Stanley presented their financial analysis of the proposals received and an analysis of the valuation of Novelis as a standalone company. During this discussion, the board noted the risks and challenges in executing our current strategic plan and realizing value for the shareholders in excess of the value offered by the Hindalco bid. The board also noted the fact that no additional bidders emerged following the public announcement on January 26, 2007 that we were in discussions related to a potential sale of Novelis.

 

Each of Morgan Stanley and Evercore then presented an analysis of the proposed transaction with Hindalco and delivered opinions indicating that, as of the date thereof and based upon and subject to the factors and assumptions set forth in the opinions, the $44.93 per share in cash to be received by our shareholders pursuant to the Arrangement Agreement in the Hindalco proposal was fair from a financial point of view to our shareholders.

 

Following this discussion, the board unanimously determined to approve the Arrangement and the Arrangement Agreement and to recommend that our shareholders approve the Arrangement Resolution.

 

During the evening of February 10, 2007, the Arrangement Agreement and the related documents were finalized, and the Arrangement Agreement was executed. The parties issued a press release announcing the execution of the Arrangement Agreement on February 11, 2007.

 

Our board of directors, acting with the advice and assistance of its legal and financial advisors and our management, evaluated Hindalco’s proposal, including the terms and conditions of the Arrangement Agreement with Hindalco and Acquisition Sub. After careful deliberation, at a February 10, 2007 meeting described above under “Background of the Arrangement,” our board of directors by a unanimous vote determined that the Arrangement is fair to our shareholders and is in our best interest. In reaching these determinations, our board considered the following factors and potential benefits of the Arrangement, each of which the board believes supported its decision:

 

 

 

Our board also considered a variety of risks and other potentially negative factors concerning the Arrangement, including the following:

 

 

The foregoing discussion of the factors considered by our board includes the material factors considered by our board of directors in its consideration of the Arrangement Agreement and the Arrangement, but is not intended to be exhaustive. After considering these factors, the board of directors concluded that the positive factors relating to the Arrangement Agreement and the Arrangement outweighed the potential negative factors. In view of the wide variety of factors considered by the board of directors, and the complexity of these matters, our board did not find it practicable to quantify or otherwise assign relative weights to the foregoing

factors. In addition, individual members of the board of directors may have assigned different weights to various factors. Our board of directors by a unanimous vote approved the Arrangement Agreement and recommended that our shareholders approve the Arrangement Resolution based upon the totality of the information presented to and considered by it.

 

Pursuant to a letter agreement dated as of November 2, 2006, we engaged Morgan Stanley to provide financial advisory services in connection with our potential sale. At the meeting of our board of directors on February 10, 2007, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing that, based upon and subject to the various considerations set forth in the opinion, the consideration to be received by our shareholders in the Arrangement is fair from a financial point of view to such shareholders.

 

The full text of the written opinion of Morgan Stanley, dated February 10, 2007, which sets forth among other things, assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion, is attached as Annex D to this Proxy Statement/Circular. Shareholders are urged to, and should, read the opinion carefully and in its entirety. Morgan Stanley’s opinion is directed to our board of directors and addresses only the fairness, from a financial point of view, of the consideration to be received by our shareholders in the Arrangement as of the date of the opinion and does not address any other aspect of the Arrangement (including how any shareholders should vote with respect to the approval of the Arrangement Resolution or the availability of the proposed financing for the transaction).

 

In connection with rendering its opinion, Morgan Stanley, among other things:

 

 

In rendering its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information supplied or otherwise made available to Morgan Stanley by us for the purposes of its opinion. With respect to the financial projections, Morgan Stanley assumed that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of our future financial performance.

 

Morgan Stanley assumed that the executed versions of the Arrangement Agreement would not differ in any material respect from the last drafts reviewed by Morgan Stanley. Morgan Stanley assumed that the Arrangement will be consummated in accordance with the terms set forth in the Arrangement Agreement without any waiver, amendment or delay of any terms or conditions including, among other things, that

Hindalco will obtain financing for the acquisition in accordance with the terms set forth in the commitment letters. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the transaction contemplated in the Arrangement Agreement, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed transaction. Morgan Stanley is not a legal, tax or regulatory advisor and relied upon, without independent verification, the assessment of us and our legal, tax or regulatory advisors with respect to legal, tax or regulatory matters. Morgan Stanley expressed no opinion on any impact of the Arrangement on the tax treatment of any prior corporate restructuring involving us or otherwise. Morgan Stanley did not make any independent valuation or appraisal of our assets or liabilities, nor was it furnished with any such appraisals.

 

Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it, as of February 10, 2007. Events occurring after such date may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.

 

The following is a brief summary of the material analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion letter dated February 10, 2007. Some of these summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses.

 

Historical Share Price

 

Morgan Stanley reviewed the performance of our common shares and compared such performance with the stock performance of (1) the companies comprising a metal processing company index (the “Metal Processing Company Index”), which consists of the following companies: Reliance Steel & Aluminum Co., Quanex Corp., Gibraltar Industries, Inc., Accuride Corp. and Steel Technologies Inc. and (2) the companies comprising a rigid packaging company index (the “Rigid Packaging Company Index”), which consists of the following companies: Owens-Illinois Inc., Ball Corporation and Crown Holdings, Inc. The index companies included in this analysis were chosen because they operate in and are exposed to similar lines of business as us.

 

Morgan Stanley observed that during the period from January 25, 2007 (the day prior to our public announcement that we were in communications with various parties that could lead to our sale) (the “Unaffected Date”) to February 9, 2007 (the last trading day prior to the announcement of the execution of the Arrangement Agreement), the price per share of our common shares increased 27.9%. Our common shares closed at $30.13 per share (the “Unaffected Price”) on January 25, 2007 and closed at $38.54 per share on February 9, 2007. In comparison, during the period from January 25, 2007 to February 9, 2007, the Metal Processing Company Index increased 3.1% and the Rigid Packaging Company Index increased 2.3%.

 

Morgan Stanley also noted that the trading range for the 52-week period ended January 25, 2007 for our common shares was from $18.03 per share to $30.57 per share and compared that to the consideration to be received by our shareholders in the Arrangement of $44.93 per share. Morgan Stanley noted that the implied premium of the consideration to be received by our shareholders in the Arrangement of $44.93 per share when compared to the Unaffected Price was 49.1%.

 

Securities Research Analysts’ Future Price Targets

 

Morgan Stanley reviewed the twelve-month public market trading price targets for our common shares prepared and published by securities research analysts prior to the Unaffected Date. These targets reflected each securities research analyst’s estimate of the future public market trading price of our common shares. Morgan Stanley discounted the securities research analysts’ price targets back twelve months to arrive at a

range of present values of these targets. Morgan Stanley arrived at a range of present values from approximately $11 per share to $29 per share.

 

Peer Group Comparison

 

Morgan Stanley compared certain of our financial information with publicly-available information for peer group companies that operate in and are exposed to similar lines of business as us, namely companies in (1) the downstream metal processing industry, and (2) the rigid packaging industry. The peer group of downstream metal processing companies included:

 

 

The peer group of rigid packaging companies included:

 

 

For this analysis, Morgan Stanley examined estimates for the peer groups based on consensus securities analysts’ research provided by I/B/E/S International Inc. (“I/B/E/S”) and public filings for each of the companies in the peer group. The following table presents, as of February 6, 2007, the low, high and median of the ratio of aggregate value, defined as market capitalization plus total debt plus minority interests less cash and cash equivalents, to estimated calendar year 2006 earnings before interest taxes and depreciation (“EBITDA”) and to estimated calendar year 2007 EBITDA. Morgan Stanley then compared this information to similar information for us based on the Unaffected Price and based on the consideration to be received by our shareholders in the Arrangement.

 

 

Trading multiples for our common shares were calculated based on management’s adjusted EBITDA estimates for calendar years 2006 and 2007 (“Adjusted EBITDA”). Adjusted EBITDA was developed with our management to reflect the ongoing operating performance of the business, and excludes non-recurring, non-operational effects on our financial results, such as the negative impact of certain customer contracts with aluminum price ceiling provisions (net of the realized gains on hedges implemented to off-set such negative impacts). Aggregate value for Novelis, as calculated for the purposes of this analysis, includes the present value of the negative free cash flows from the price ceiling provisions.

 

Morgan Stanley noted trading multiple ranges for the peer group companies of 7.0x to 8.0x 2006 EBITDA and 6.5x to 7.0x 2007 EBITDA. Morgan Stanley compared these ranges to multiples for us of 8.6x 2006 Adjusted EBITDA and 8.3x 2007 Adjusted EBITDA as implied by the consideration to be received by our shareholders in the Arrangement.

 

No company utilized in the peer group comparison analysis is identical to us. In evaluating the peer group, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond our control, such as the impact of competition on our business or the industry generally, industry growth and the absence of any material adverse change in our financial condition and prospects or the industry or in the financial markets in general. Mathematical analysis, such as determining the average or median, is not in itself a meaningful method of using peer group data.

 

Analysis of Selected Precedent Transactions

 

Using publicly available information, Morgan Stanley reviewed the terms of selected precedent transactions in which the targets were companies or divisions that operate in and were exposed to similar lines of business as us. For this analysis Morgan Stanley reviewed the following transactions:

 

For each of the transactions above, Morgan Stanley reviewed the price paid and calculated the ratio of aggregate value to last twelve-month (“LTM”) EBITDA. Morgan Stanley compared this information to similar information for us based on the consideration to be received by our shareholders in the Arrangement. The following table presents the high, low and median aggregate value to LTM EBITDA for the precedent transactions:

 

 

Morgan Stanley noted a multiple range of 6.5x to 7.5x of LTM EBITDA for selected precedent transactions and compared such range to a multiple for us of 8.6x LTM Adjusted EBITDA implied by the consideration to be received by our shareholders in the Arrangement.

 

No company or transaction utilized as a comparison in the selected precedent transactions analysis is identical to us or the Arrangement. In evaluating the transactions listed above, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond our control, such as the impact of competition on our business or the industry generally, industry growth and the absence of any adverse material change in our financial condition and prospects or the industry or in the financial markets in general. Mathematical analysis, such as determining the average or median, is not in itself a meaningful method of using comparable transaction data.

 

Discounted Cash Flow Analysis

 

Morgan Stanley performed a discounted cash flow analysis, which is an analysis of the present value of projected unlevered free cash flows using terminal year EBITDA multiples. Morgan Stanley analyzed our business using publicly-available information, information obtained from discussions with our management and certain financial forecasts prepared by our management for the fiscal years 2006 through 2011. The terminal value was calculated by applying terminal multiples ranging from 6.5x to 7.0x to an average of the Adjusted EBITDA for calendar years 2005 through 2011 as estimated by our management. For purposes of this analysis, Morgan Stanley calculated our discounted unlevered free cash flow value using discount rates ranging from 10.0% to 12.0%. The range of discount rates was selected based upon an analysis of our weighted average cost of capital and on the experience and judgment of Morgan Stanley.

 

Morgan Stanley analyzed our business using three financial forecasts prepared by our management. Using a scenario that assumed consistent aluminum rolled product shipment growth and increasing profitability over the forecast period (“Case A”), the result of the discounted cash flow analysis implied a range of values for our common shares of approximately $28 to $38 per share. Using a scenario that contemplated an economic downturn occurring in 2009 (“Case B”), the result of the discounted cash flow analysis implied a range of values for our common shares of approximately $25 to $32 per share. Using a scenario that contemplated a similar economic downturn as in Case B but occurring in 2007 (“Case C”), the result of the discounted cash flow analysis implied a range of values for our common shares of approximately $21 to $28 per share.

 

In summary the analyses implied the following ranges of value per share of our common shares:

 

 

Morgan Stanley compared the range of per share values observed in each of its discounted cash flow analyses with the consideration to be received by our shareholders in the Arrangement of $44.93 per share.

 

Leveraged Buyout Analysis

 

Morgan Stanley performed a leveraged buyout analysis to estimate the theoretical purchase price that a financial buyer could pay in an acquisition of us taking into account our potential pro forma leverage structure that could result from financing such acquisition under customary market terms and assuming that such financial buyer would attempt to realize a return on its investment in calendar year 2011. Estimated financial data for us were based on Cases A, B and C, as provided by our management. Estimated exit values for us were calculated by applying a range of exit value multiples of 6.5x to 7.0x to an average of the Adjusted EBITDA for calendar years 2005 through 2011 as estimated by our management. Morgan Stanley then derived a range of theoretical purchase prices based on an assumed required internal rate of return for a financial buyer of between 15 and 25%.

 

This analysis implied the following ranges of value per share of our common shares:

 

 

In connection with the review of the Arrangement by our board of directors, Morgan Stanley performed a variety of financial and comparative analyses for purposes of its opinion given in connection therewith. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor considered by it. Furthermore, Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analysis and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors and may have deemed various assumptions more or less probable than other assumptions, so that the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of our actual value.

 

In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond our control. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates. The analyses performed were prepared solely as part of Morgan Stanley’s analysis of the fairness from a financial point of view of the consideration to be received by our shareholders in the Arrangement, and were conducted in connection with the delivery of the Morgan Stanley opinion to our board of directors. These analyses do not purport to be appraisals or to reflect the prices at which our common shares might actually trade. The consideration to be received by our shareholders in the Arrangement and other terms of the Arrangement Agreement were determined through arm’s-length negotiations between Hindalco and us and were approved by our board of directors. Morgan Stanley provided advice to us during such negotiations; however, Morgan Stanley did not recommend any specific consideration to us or that any specific consideration constituted the only appropriate consideration for the proposed transaction. In addition, as described above, Morgan Stanley’s opinion and presentation to our board of directors was one of many factors taken into consideration by our board in making its decision to approve the Arrangement Agreement. Consequently, the Morgan Stanley analyses as described above should not be viewed as determinative of the opinion of our board of directors with respect to our value or determinative of whether our board of directors would have been willing to agree to a different consideration.

 

Our board of directors retained Morgan Stanley based upon Morgan Stanley’s qualifications, experience and expertise and its knowledge of our business affairs. Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. In the past, Morgan

Stanley has provided financial advisory and financing services to us and has received fees for the rendering of these services. In the ordinary course of business, Morgan Stanley may from time to time trade in our or Hindalco’s securities or indebtedness or those of any other company, currency or commodity that may be involved in this transaction, for its own account, the accounts of investment funds and other clients under the management of Morgan Stanley and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities or indebtedness.

 

Pursuant to the letter agreement dated as of November 2, 2006, Morgan Stanley provided financial advisory services and a financial fairness opinion to our board of directors in connection with the Arrangement, and we agreed to pay Morgan Stanley a customary fee in connection therewith, a substantial portion of which is contingent upon the closing of the Arrangement. We also agreed to reimburse Morgan Stanley for its reasonable, documented expenses incurred in performing its services. In addition, we agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of Morgan Stanley’s engagement.

 

On February 10, 2007, Evercore delivered its oral opinion to our board of directors, which opinion was subsequently confirmed in writing on February 10, 2007, to the effect that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the $44.93 cash consideration to be received by shareholders per share, other than dissenting holders’ shares and any of our common shares that are held by Hindalco, Acquisition Sub or any of their affiliates (the “Excluded Shares”), is fair, from a financial point of view as of the date of such opinion, to our shareholders.

 

The full text of the written opinion of Evercore, dated February 10, 2007, which sets forth the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken in connection with the opinion, is contained in Annex E to this Proxy Statement/Circular and is incorporated by reference into this Proxy Statement/Circular. We encourage you to read the opinion in its entirety.

 

Evercore’s opinion is directed to our board of directors, addresses only the fairness from a financial point of view of the $44.93 per share in cash consideration to be received by our shareholders, other than holders of Excluded Shares, pursuant to the Arrangement Agreement and does not address any other aspect of the Arrangement or constitute a recommendation to any of our shareholders as to how to vote at the Meeting. The following is a summary of Evercore’s opinion and the methodology that Evercore used to render its opinion. This summary is qualified in its entirety by reference to the full text of the opinion.

 

In connection with rendering its opinion, Evercore, among other things:

 

 

 

For purposes of its analysis and opinion, Evercore did not assume any responsibility for independently verifying the accuracy and completeness of the information reviewed by or reviewed for Evercore. With respect to our financial projections which were furnished to Evercore, Evercore assumed that such financial projections were reasonably prepared by us, on bases reflecting the best currently available estimates and good faith judgments of the future competitive, operating and regulatory environments and our related financial performance. Evercore expressed no view as to any such financial projections or the assumptions on which they were based. Evercore neither made nor assumed any responsibility for making any independent valuation or appraisal of our assets or liabilities, nor was Evercore furnished with any such appraisals. Evercore is not a legal, regulatory, accounting or tax expert and assumed the accuracy and completeness of assessments by our advisors with respect to such issues. Evercore expressed no opinion on any impact of the Arrangement on the tax treatments of any prior corporate restructuring involving us. Evercore assumed that the Arrangement will be consummated in accordance with the terms set forth in the Arrangement Agreement without any waiver, amendment or delay of any term, condition or agreement set forth therein. Evercore further assumed that all required governmental, regulatory or other consents and approvals necessary for the consummation of the Arrangement will be obtained without any material adverse effect on us.

 

Evercore’s opinion was necessarily based on economic, market and other conditions as in effect on, and the information and the Arrangement Agreement and related exhibits and schedules thereto made available to Evercore as of, the date of its opinion. Subsequent developments may affect Evercore’s opinion and Evercore does not have any obligation to update, revise or reaffirm its opinion. Evercore’s opinion does not address our underlying business decision to effect the Arrangement and Evercore expressed no opinion or recommendation as to how our shareholders should vote at the Meeting to be held in connection with the Arrangement.

 

In addition, Evercore was not requested to and did not provide advice concerning the structure, the specific amount of the consideration, or any other aspects of the Arrangement contemplated by the Arrangement Agreement, nor was Evercore requested to provide services other than the delivery of its opinion. Evercore was not authorized to solicit, and did not solicit, interest from any party with respect to an acquisition of, business combination with, or other extraordinary transaction involving, us. Evercore did not participate in the multi-party auction process conducted on our behalf or in the negotiations with respect to the terms of the Arrangement.

 

Evercore was not asked to pass upon, and expressed no opinion with respect to, any matter other than the fairness from a financial point of view of the Arrangement consideration to be received by our shareholders, other than holders of Excluded Shares, pursuant to the Arrangement Agreement.

 

Evercore provided a fairness opinion to our board of directors pursuant to a letter agreement dated February 2, 2007 and we agreed to pay Evercore a customary fee in connection therewith. In addition, we have agreed to reimburse Evercore’s reasonable and customary expenses and to indemnify Evercore against certain liabilities arising out of its engagement, including certain liabilities under the federal securities laws. No portion of Evercore’s fee or expense reimbursement is contingent upon the successful completion of the Arrangement or the conclusions reached in Evercore’s opinion.

 

We engaged Evercore to act as a financial advisor based on its qualifications, experience and reputation and its knowledge of our business. Evercore is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses in connection with mergers and acquisitions, leveraged buyouts, competitive biddings, private placements and valuations for corporate and other purposes. In the ordinary course of business, the affiliates of Evercore may actively trade in the debt and equity securities, or

options on securities, of Hindalco or us, for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

 

Set forth below is a summary of the material financial analyses presented by Evercore to our board of directors in connection with rendering Evercore’s opinion. The following summary, however, does not purport to be a complete description of the analyses performed by Evercore. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before February 9, 2007, and is not necessarily indicative of current market conditions.

 

The following summary of financial analyses includes information presented in tabular format. You should read these tables together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses.

 

Analysis of Historical Trading Prices and Implied Arrangement Premiums

 

Evercore reviewed the historical closing prices of our common shares since January 6, 2005, the first day of trading on a “when issued” basis of our common shares after our spin-off from Alcan Inc., and calculated the average daily closing prices of our common shares over various time periods, and noted the closing share price on selected dates including and prior to February 9, 2007. Evercore then calculated and compared the premium that the Arrangement consideration of $44.93 per share represented relative to the average daily closing prices of our common shares for the selected periods and dates. The results of these calculations are summarized below:

 

 

 

 

Discounted Cash Flow Analysis

 

Evercore performed a discounted cash flow analysis (“DCF”) which calculates the present value of a company’s future cash flows based upon assumptions with respect to such cash flows and assumed discount rates. Evercore’s DCF analysis of us was based upon three sets of financial projections prepared and furnished to Evercore by our management (Case A, Case B and Case C). Our management prepared the three cases of financial projections based upon different assumptions regarding business and industry trends. Management indicated that Case A reflected stable business and industry trends that would produce steady growth and improving margins for us during the projection period (2007-2011). Case B assumed a downturn in 2009 that would reduce revenues and depress margins for the remaining years in the projection period (2010-2011). Case C assumed a downturn in 2007 that would reduce revenues and depress margins for the remaining years of the projection period (2008-2011).

 

Evercore calculated a range of implied per share values for our common shares determined by: (1) adding (a) the implied present value of our forecasted unlevered free cash flows over the five-year period from January 1, 2007 to December 31, 2011, determined using a weighted average cost of capital range of between 10.0% and 12.0% (weighted average cost of capital is a measure of the average expected return on all of a company’s securities or loans based on the proportions of those securities or loans in such company’s capital structure), and (b) the implied present value of the terminal value of our future cash flows as of December 31, 2011, calculated as described below, and discounting the result over a five-year period using a weighted average cost of capital range of between 10.0% and 12.0%; (2) deducting our debt, net of estimated cash, as of December 31, 2006; and (3) dividing the amount resulting from the calculation described in (1) and (2) above by the number of our common shares outstanding, adjusted for certain stock options outstanding using the treasury stock method, as of the date of the Arrangement Agreement.

 

Evercore calculated our terminal value using two methodologies, both based on estimates of adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, which is referred to as Adjusted EBITDA. Evercore believes that Adjusted EBITDA better reflects our ongoing operating performance by excluding certain non-recurring and non-operational items, such as the negative impact of certain customer contracts with aluminum price ceiling provisions (net of realized gains on hedges implemented to offset such negative impacts). Evercore calculated the terminal values by (1) multiplying average Adjusted EBITDA for the 2005-2011 period by a range of multiples of 6.0x to 7.0x and (2) multiplying Adjusted EBITDA estimated for fiscal year 2011 by a range of multiples of 5.5x to 6.5x.

 

This analysis yielded implied per share present values of our common shares as shown below:

 

(1) Price Per Share Based on Average Adjusted EBITDA

 

(2) Price Per Share Based on 2011 Adjusted EBITDA

 

This compares to the Arrangement consideration of $44.93 per share.

 

Leveraged Buyout Analysis

 

Evercore performed a leveraged buyout analysis of us in order to ascertain the price of our common shares which might be attractive to a potential financial buyer based upon three sets of financial projections prepared and furnished to Evercore by our management (Case A, Case B and Case C).

 

Evercore assumed the following in its analysis: (1) a leverage multiple of 6.5x LTM EBITDA, adjusted for certain items to reflect the ongoing profitability of the business; (2) a projected 2011 Adjusted EBITDA exit multiple ranging from 5.5x to 6.5x; (3) 5.0% of our ownership was granted to management in the form of

options with an exercise price equal to the transaction buy-in price; and (4) an equity investment that would achieve an annual rate of return over the four year and six month period of between 18.0% and 24.0%. This analysis yielded implied per share present values of our common shares as shown below:

 

 

This compares to the Arrangement consideration of $44.93 per share.

 

Present Value of Future Share Price Analysis

 

Evercore performed a present value of future shares price analysis of us based upon three sets of financial projections prepared and furnished to Evercore by our management (Case A, Case B and Case C).

 

Evercore calculated a range of implied per share values for our common shares determined by (1) calculating the implied terminal value per share by multiplying the Adjusted EBITDA estimated for fiscal year 2011 by 5.5x, 6.0x and 6.5x adjusted for net debt and shares estimated to be outstanding on December 31, 2011 and (2) calculating the present value of the implied share price by discounting the amount resulting from the calculation described in (1) above over a 5-year period using an assumed equity cost of capital of between 14.0% and 16.0%. This analysis yielded implied per share present values of our common shares as shown below:

 

 

This compares to the Arrangement consideration of $44.93 per share.

 

Analysis of Selected Companies’ Trading Levels

 

Evercore calculated enterprise value (which represents total market equity value plus book value of total debt less cash) as a multiple of EBITDA for selected publicly-traded companies using share prices as of February 9, 2007. All of these calculations were based on publicly available financial data including I/B/E/S estimates. I/B/E/S is a data source that monitors and publishes a compilation of earnings per share and other financial data produced by selected research analysts on companies of interest to investors. Although none of the selected companies are, in Evercore’s opinion, directly comparable to us, the companies included were chosen because they are publicly traded companies with operations that for purposes of this analysis may be considered similar in certain respects to certain of our operations. Evercore then calculated this valuation multiple for us based on (i) our enterprise value as implied by the Arrangement consideration of $44.93 per share and (ii) the Adjusted EBITDA for 2006 and 2007. In calculating our valuation multiples, Evercore also adjusted the enterprise value to include the present value of the liability resulting from our can price ceiling contract provisions (net of hedging gains). Evercore then compared our multiples to the mean and the median multiples derived for the selected publicly-traded companies.

 

The range of implied multiples that Evercore calculated is summarized below:

 

 

 

Novelis at Arrangement consideration of $44.93 per Share

 

 

 

 

Analysis of Selected Transactions

 

Using publicly available information, Evercore performed an analysis of selected transactions to compare certain multiples paid in other transactions to the multiples implied in the Arrangement. Evercore identified and analyzed a group of 13 acquisition transactions in the primary/integrated aluminum, metal processing/producing and rigid packaging industries that were announced between 1999 and 2007.

 

 

Evercore calculated enterprise value as a multiple of LTM EBITDA implied by these transactions. Evercore then calculated the enterprise value implied by the Arrangement consideration of $44.93 per share and our multiple based on our LTM Adjusted EBITDA. Evercore then compared our multiple to the multiples derived for the selected acquisition transactions in the primary/integrated aluminum, metal processing/producing and rigid packaging industries. Although none of the selected targets are, in Evercore’s opinion, directly comparable to us, the transactions included were chosen because they involve companies with

operations that for purposes of this analysis may be considered similar in certain respects to certain of our operations. The range of implied multiples that Evercore calculated is summarized below:

 

 

 

 

Analysis of Past Premiums Paid

 

Evercore identified and analyzed 165 U.S. acquisition transactions across all industries with transaction values from $1.0 billion to $10.0 billion that were announced in the period from January 2005 through January 2007, of which 119 represented all cash acquisitions. Using information from Thomson Financial Securities Data, a data source that monitors and publishes information on merger and acquisition transactions, Evercore calculated the premiums paid in those transactions based on the value of the per share consideration received in the transaction relative to the closing stock price of the target company one day, one week and four weeks prior to the respective dates of announcement of the transactions. Evercore then compared the results of the analysis to the premiums implied by the Arrangement consideration of $44.93 per share relative to our common share trading levels at and prior to February 9, 2007. The results of this analysis are summarized below:

 

 

 

 

Although none of the transactions are, in Evercore’s opinion, directly comparable to the Arrangement, the transactions included were chosen because they may be considered similar in certain respects to the Arrangement for purposes of this analysis.

 

Research Analyst Price Target Analysis

 

Evercore also analyzed Wall Street research analyst estimates of potential future value for our common shares (commonly referred to as price targets) based on publicly available equity research published on us. As of the Unaffected Date, analyst price targets for our common shares ranged from $13.00 to $28.50 and produced an average price target of $21.92 and a median price target of $22.75. Evercore then compared the results of this analysis to the Arrangement consideration of $44.93 per share.

 

In connection with the review of the Arrangement by our board of directors, Evercore performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary described above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Evercore’s opinion. In arriving at its fairness determination, Evercore considered the results of all the analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Evercore made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all the analyses. In addition, Evercore may have deemed various assumptions more or less probable than other assumptions, so that the range of valuations resulting from any particular analysis described above should therefore not be taken to be Evercore’s view of our value. No company used in the above analyses as a comparison is directly comparable to us, and no transaction used is directly comparable to the Arrangement contemplated by the Arrangement Agreement. Further, in evaluating comparable transactions, Evercore made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Evercore and us, such as the impact of competition on us and the industry generally, industry growth and the absence of any adverse material change in our financial condition or in the markets generally.

 

Evercore prepared these analyses for the purpose of providing an opinion to our board of directors as to the fairness from a financial point of view of the $44.93 per share of cash consideration to be received by our shareholders, other than holders of Excluded Shares. These analyses do not purport to be appraisals or to necessarily reflect the prices at which the business or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty and are based upon numerous factors, assumptions with respect to industry performance, general business and economic conditions and other matters or events beyond the control of Evercore and us, neither Evercore nor we assumes responsibility if future results are materially different from those forecast. The $44.93 per share in cash consideration to be received by our shareholders, other than holders of Excluded Shares, pursuant to the Arrangement Agreement was determined through our arm’s length negotiations with Hindalco and was approved by our board of directors. Evercore did not recommend any specific consideration to us or that any given consideration constituted the only appropriate consideration for the Arrangement.

 

The following description is qualified in its entirety by reference to the full text of the Plan of Arrangement, which is attached as Annex C to this Proxy Statement/Circular. Upon the Arrangement becoming effective, the following transactions will occur and will be deemed to occur in the order set out in the Plan of Arrangement:

 

 

 

Delivery of Consideration

 

At or before the effective time, Acquisition Sub will deliver payment for the common shares to the Depositary to be held in escrow for the benefit of shareholders, and we will deposit with the Depositary an amount of cash equal to the cash each holder of an Option, SAR, SPAU, PSU and/or DSU is entitled to receive, if any, under the Plan of Arrangement.

 

Upon surrender to the Depositary for cancellation of certificate(s) which immediately prior to the effective time represented one or more common shares, together with the letter of transmittal and such additional documents and instruments duly executed and completed as the Depositary may reasonably require, the holder of such surrendered certificate(s) shall be entitled to receive in exchange therefor, and the Depositary shall (unless instructed otherwise in the letter of transmittal) deliver to such shareholder as soon as practicable after the effective time, a check or other payment of immediately available funds representing the cash which such shareholder has the right to receive under the Arrangement, less any amounts withheld, and the certificate(s) so surrendered shall forthwith be cancelled. Until surrendered, each certificate which immediately prior to the effective time represented common shares shall be deemed after the effective time to represent only the right to receive upon such surrender a cash payment in lieu of such certificate, less any amounts withheld, pursuant to the Plan of Arrangement.

 

Unless otherwise directed in the letter of transmittal, checks to be issued will be issued in the name of the registered shareholder of the common shares so deposited. Unless the person who deposits the certificates representing the common shares instructs the Depositary to hold the check for pick-up by checking the appropriate box in the letter of transmittal, checks will be forwarded by first class mail to the address supplied in the letter of transmittal. If no address is provided, checks will be forwarded to the address of the shareholder as shown on the register of our transfer agent.

 

On or as soon as practicable after the effective date, the Depositary shall deliver on our behalf to each holder of Options, SARs, SPAUs, PSUs and/or DSUs, as the case may be, as reflected on our books and records, a check representing the payment to which such holder is entitled in accordance with the Plan of Arrangement (net of any applicable withholdings). Checks will be forwarded by first class mail to the address of the holder as shown in our records.

 

Any use of mail to transmit certificate(s) for shares and/or letters of transmittal is at the risk of the relevant shareholder. If these documents are mailed, it is recommended that registered mail, with return receipt requested and with proper insurance, be used.

 

In the event of a transfer of ownership of common shares prior to the effective time that is not registered in our transfer records, a check or other payment of immediately available funds representing the proper amount of cash may be delivered to the transferee if the certificate representing such shares is presented to the Depositary, accompanied by all documents required to evidence and effect the transfer prior to the effective time.

 

The Depositary will act as the agent of persons who have deposited shares in connection with the Arrangement for the purpose of receiving payment from Acquisition Sub and transmitting payment from Acquisition Sub to such persons, and receipt of payment by the Depositary will be deemed to constitute receipt of payment by persons depositing common shares.

 

If any shareholder fails for any reason to surrender to the Depositary for cancellation the certificates formerly representing common shares, together with such other documents or instruments required to entitle the holder to receive the cash payment described above, on or before the sixth anniversary of the effective date, such certificate shall cease to represent a claim by or interest of any former shareholder of any kind or nature. On such anniversary date, all certificates representing common shares and cash to which such former holder was entitled shall be deemed to have been surrendered and forfeited to Acquisition Sub. In addition, any payment made by way of check by the Depositary on behalf of Acquisition Sub or on our behalf that has not been deposited or has been returned to the Depositary or that otherwise remains unclaimed, in each case on or before the sixth anniversary of the effective date of the Arrangement, shall cease to represent a right or claim of any kind or nature and the right of the shareholder or holder of Options, SARs, SPAUs, PSUs and/or DSUs, to receive the consideration to which they are entitled pursuant to the Plan of Arrangement shall terminate and be deemed to be surrendered and forfeited to Acquisition Sub or to us, as applicable.

 

Novelis, Acquisition Sub and the Depositary will be entitled to deduct and withhold from any consideration otherwise payable to a shareholder or holder of Options, SARs, SPAUs, PSUs and/or DSUs, as the case may be, such amounts as we, Acquisition Sub or the Depositary is required or permitted to deduct and withhold with respect to such payment under applicable laws and all such withheld amounts will be remitted to the appropriate governmental authority in the prescribed manner and within the prescribed time.

 

The Depositary will receive reasonable and customary compensation for its services in connection with the Arrangement, will be reimbursed for certain out of pocket expenses and will be indemnified by us against certain liabilities under applicable securities laws and expenses in connection therewith.

 

Under no circumstances will interest on the consideration payable under the Arrangement accrue or be paid to persons depositing common shares, regardless of any delay in making such payment.

 

If the Arrangement Resolution is approved by our shareholders and the other conditions to closing of the Arrangement are either satisfied or (to the extent permitted by law) waived, Acquisition Sub, a subsidiary of Hindalco created solely for the purpose of engaging in the transactions contemplated by the Arrangement Agreement, will acquire all of our outstanding common shares. When the Arrangement is completed, our common shares will no longer be publicly traded and we will become an indirect subsidiary of Hindalco. Therefore, our shareholders will not participate in our future earnings growth and will not benefit from any appreciation in our value.

 

Our common shares are currently registered under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, and are traded on the New York Stock Exchange and the Toronto Stock Exchange under the symbol “NVL.” As a result of the Arrangement, we will become an indirect subsidiary of Hindalco, our common shares will cease to be traded on the NYSE and the TSX and there will be no public market for our common shares. In addition, registration of our common shares under the Exchange Act will be terminated, and we will no longer be required to file periodic reports with the SEC, except as may be required under our Senior Notes, to the extent they remain outstanding following the Arrangement. We will also make an application to cease to be a reporting issuer (or equivalent) under the securities legislation of each of the provinces and territories in Canada.

 

If the Arrangement Resolution is not approved by our shareholders or if the Arrangement is not completed for any other reason, our shareholders will not receive any payment for their common shares in connection with the Arrangement. Instead, we will remain an independent public company, and our common shares will continue to be traded on the NYSE and the TSX. In addition, if the Arrangement is not completed, we expect that management will operate our business in a manner similar to that in which it is being operated

today and that our shareholders will continue to be subject to the same risks and opportunities to which they are currently subject.

 

Accordingly, if the Arrangement is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your common shares. If the Arrangement is not completed, our board of directors will continue to evaluate and review our business operations, properties, dividend policy and capitalization, among other things, and will make such changes as are deemed appropriate. It will also continue to consider strategic alternatives for our company. If the Arrangement Resolution is not approved by our shareholders or if the Arrangement is not consummated for any other reason, there can be no assurance that any other transaction acceptable to us will be offered or that our business, prospects or results of operations will not be adversely impacted.

 

If the Arrangement Agreement is terminated under certain circumstances we will be obligated to pay a termination fee of $100 million to Acquisition Sub or an expense reimbursement fee of up to $15 million to Hindalco. For a description of the circumstances triggering payment of the termination fees, see “The Arrangement Agreement — Company Termination Payment” on page 64.

 

In addition to their interests in the Arrangement as shareholders, certain of our directors and executive officers have interests in the Arrangement that differ from, or are in addition to, your interests as a shareholder. In considering the unanimous recommendation of our board of directors to vote “FOR” the approval of the Arrangement Resolution, you should be aware of these interests. Our board of directors was aware of, and considered the interests of, our directors and executive officers in approving and adopting the Arrangement Agreement, the Arrangement and the transactions contemplated by the Arrangement Agreement. Except as described below, such persons have, to our knowledge, no material interest in the Arrangement that differs from your interests generally.

 

Options, Stock Appreciation Rights and Stock Price Appreciation Units

 

The Arrangement Agreement provides that each Option, SAR and SPAU outstanding, whether or not then exercisable, will (1) unconditionally vest and be transferred to Novelis for a cash payment equal to the amount, if any, by which $44.93 exceeds the exercise price of the Option, SAR or SPAU, as applicable, without interest and less any applicable withholding taxes, and (2) be cancelled and all agreements related thereto will be terminated.

 

Assuming the effective time of the Arrangement occurs by May 31, 2007 and based on the number and exercise prices of vested and unvested options held on February 20, 2007 by our executive officers (including options that are expected to vest prior to the Arrangement and those that are expected to vest as a result of the Arrangement), as set forth in the following table, our executive officers will receive the following amounts (net of per share exercise price and before applicable withholding taxes) in settlement of their respective options, if the Arrangement is completed:

 

 

Assuming the effective time of the Arrangement occurs by May 31, 2007 and based on the number of SARs held on February 20, 2007 by our executive officers, as set forth in the following table, our executive officers will receive the following amounts (net of per share exercise price and before applicable withholding taxes) in settlement of their respective SARs, if the Arrangement is completed:

Assuming the effective time of the Arrangement occurs by May 31, 2007 and based on the number of vested and unvested SPAUs held on February 20, 2007 by our executive officers (including SPAUs that are expected to vest prior to the Arrangement and those that are expected to vest as a result of the Arrangement), as set forth in the following table, our executive officers will receive the following amounts (net of per share exercise price and before applicable withholding taxes) in settlement of their respective SPAUs, if the Arrangement is completed:

 

 

Performance Share Units and Deferred Share Units

 

The Arrangement Agreement provides that each PSU and each DSU will be cancelled in exchange for a cash payment in an amount equal to $44.93 per PSU or DSU, as applicable, less applicable withholdings and the holder of such PSU or DSU will cease to be the holder of such PSU or DSU.

 

As of February 20, 2007, the following executive officers were eligible to receive the following numbers of PSUs, and if the Arrangement is completed, each executive officer listed below is expected to receive the following amounts in cash (assuming that the amount credited per PSU will be equal to the purchase price of $44.93 per share) and subsequently distributed:

 

As of February 20, 2007, the following directors were eligible to receive the following numbers of DSUs, and if the Arrangement is completed, each director listed below is expected to receive the following amounts in cash (assuming that the amount credited per DSU will be equal to the purchase price of $44.93 per share) and subsequently distributed:

 

 

Change-in-Control/Severance Payments

 

We previously entered into change in control agreements with certain of our executive officers and key employees that provide for severance payments by us upon termination of the executive officer’s employment without “cause” or by the executive officer for “good reason.” Martha Finn Brooks, Rick Dobson, Les Parrette, Arnaud de Weert, Kevin Greenawalt, David Godsell, Thomas Walpole, Tadeu Nardocci, Steven Fisher, Orville Lunking, and Robert Patterson are our executive officers who are party to change in control agreements with us. Under the change in control agreements, if an officer’s employment is terminated by Novelis during a two-year period following a change in control event, or within six months prior to a change in control event, for any reason other than for cause, death, disability or certain retirement events, or if the officer resigns for good reason, he or she will be entitled to severance compensation as follows:

 

 

 

The following table summarizes the cash payments and value of continued benefits, as outlined above, that would be made to each executive officer party to a change in control agreement if the officer’s agreement was triggered by certain terminations by Novelis or the executive officer following the Arrangement. For purposes of this calculation, we have assumed the executive officer’s salary, bonus amounts, the target bonus as in effect on the date hereof, and a theoretical termination date of May 31, 2007.