International Joint Ventures and Merger & Acquisitions

Aleris Acquisition Makes Hindalco Largest Aluminium Company in World

September 04, 2018

Kumar Mangalam Birla’s metal flagship Hindalco Industries Ltd has agreed to acquire US-based aluminium sheet maker Aleris Corp. for $2.58 billion.

Kumar Mangalam Birla’s metal flagship Hindalco Industries Ltd has agreed to acquire US-based aluminium sheet maker Aleris Corp. for $2.58 billion. This acquisition will congeal Hindalco to the position of world’s largest aluminium player. Aditya Birla Group’s chairman Kumar Mangalam Birla said, “The merger will have synergies of $150 million. This also enhances the access to world-class manufacturing capabilities for our existing Indian aluminium value added operations and accelerates our path to making world-class products in India”.

Ohio-based Aleris is privately held by PE firms Apollo Management, Oaktree Capital Management and Sankaty Advisors. Aleris will be Hindalco’s second acquisition in the US after Novelis, which it had bought for $6 billion in 2007. Hindalco’s purchase of Novelis was the second biggest overseas deal by an Indian entity after Tata Steel’s $13 billion acquisition of Corus. Hindalco will acquire Aleris through Novelis in a debt-financed deal. The transaction will make Hindalco a $21-billion entity in terms of revenues, with an employee base of 40,000.

The transaction is being advised by Goldman Sachs and Moelis. As the purchase will be fully debt-funded, Hindalco has agreed to pay $775 million for equity which it will pay through Novelis and for the remaining amount, it will take over the debt of $1.8 billion on Aleris’ books. The transaction is subject to regulatory approvals in the US, European Union and Asia including the antitrust agencies and is expected to be closed within 9-15 months.

Aleris will add another $2.6 billion to Novelis’ current debt of $3.5 billion and totals it to $6.1 billion. Post this deal, the net-debt-to-Ebitda of Novelis will go up to four times and the same on Hindalco’s consolidated books will increase to 3.5 times. They expect to reduce the debt to half along with will bring down the net-debt-to-Ebitda to three times on Novelis’ books and below three times on Hindalco’s consolidated books in the next two years via the revenues generated by the investments done in Aleris.

Via an email, Anjani K Agrawal, Partner and Global Steel Leader, Ernst & Young said, “The consolidation (of Aleris and Novelis) with focus on technology and the knowhow will be immensely value-accretive over a long term for the aluminium business. The timing seems opportune as capital investments by Aleris in the US will be leveraged in a more favorable trade policy environment.”

Apart from Germany and China, Aleris has 11 manufacturing facilities in the world with nine of them sited in America. Aleris has a long-term supply contracts with plane makers Boeing, Airbus and Bombardier.The acquisition will also give Hindalco access to the aluminium supply market for the building and construction segments.

In 2016, the private equity owners of Aleris, Oaktree Capital, Apollo and Sankaty Advisors entered into a contract with Chinese aluminium billionaire Liu Zhongtain for $2.3 billion. But due to regulatory and national security issues, and criticism concerning how Chinese could compromise proprietary technology used by US defense services, the deal failed to materialize. Aleris specialize in making materials that are used in American battle tanks and armored vehicles.

As per talks, the Aditya Birla Group doesn’t see any obstacles in getting antitrust clearances, but sees a “political risk” to the Aleris buyout. Concerning the same, Novelis’ chief executive Steve Fisher said, “We don’t see any reason why we won’t get a clearance in the US, given the presence Novelis has in the US combined with our parent company in India”. Thus, the Aditya Birla Group hopes to succeed in getting all clearances for the Aleris buyout. Trump’s protectionist trade policies are prompting companies to acquire businesses in the US as Asian nations lose some of their competitive advantage.

Birla Group’s chairman Kumar Mangalam Birla said “The acquisition of Aleris is the next phase of our aluminium value added products growth strategy. This will solidify our position as the world’s No.1 aluminium value-added products player. Post this acquisition, we are well placed to serve our customers across geographies in automotive and now the high-end aerospace segments.”

This acquisition will help Hindalco to enhance sales in the lucrative automotive and high-end aerospace segments through Aleris’ technological, research and manufacturing capabilities in Germany and China. Aerospace accounts for 14% of Aleris’ total revenue of $3 billion. It will also enlarge Hindalco’s total capacity of downstream aluminium products to 4.7 million tonnes.

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