Takeover Rumor Spurs Gains in Novelis

Article Excerpt

NOVELIS INC. $44 (Toronto symbol NVL; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 74.0 million; Market cap: $3.3 billion; SI Rating: Average) has struggled since former parent company Alcan Inc. (see page 25) spun it off in early 2005. Novelis uses aluminum to make beverage containers, automotive parts and construction materials, and many of its major supply contracts lock in aluminum prices at certain ranges. That prevented it from passing along rising input costs to its customers, and squeezed profit margins. The company is now phasing out these contracts. Accounting problems related to the spin-off also hurt its reputation with investors. We felt these were temporary setbacks, and continued to view Novelis as a buy. It seems others share our view. A media report that an Indian building materials company plans to launch a takeover bid helped spark a 25% jump in Novelis’s stock price. It’s hard to predict the outcome of rumors like these. But the stock will probably stay…

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