Birla group flagship Hindalco on Thursday announced acquisition of American aluminium maker Aleris in a $2.58 billion leveraged deal through its overseas subsidiary Novelis. The new buy will help it diversify product offerings in the value-added products segment.

The acquisition will make Hindalco the second largest aluminium maker globally with a revenue of $21 billion and an annual capacity of 4.7 million tonnes, chairman Kumarmangalam Birla told reporters. A decade ago the Aditya Birla Group had acquired Novelis in a $6-billion transaction.

Novelis has signed a definitive agreement to acquire the privately-owned Aleris Corporation specialised in automobile and aerospace products, Birla said.

Ohio-headquartered Aleris is owned by private equity funds Apollo Management and Oaktree Capital Management..

Terming the acquisition as a "value accretive", Birla said he expects the transaction to be completed over the next 9-15 months.
The buyout will increase Hindalco's play in the automotive  segment--Birla expects the contribution of this segment to move up by 2 percentage points to 22 per cent of the group's revenue. He said both the aerospace and automotive segments are expected to play a pivotal role going ahead. Additionally, it is also expected to help with know-how at all of Novelis and Hindalco's plants, he added.

Birla said the group plans to fund the deal with debt. The deal involves a $775-million cash payment and taking over the debt of Aleris which includes over $200 million in pension liabilities.

But this is spread over multiple years and are taken into consideration while arriving at the valuation, he added. Aleris has 13 plants in North America, China and across the European Union, and R&D centres in Koblenz in Germany. The company employs over 5,400. It had revenue of $3 billion in 2017 and is expected to clock an operational profit of $360 million this year. Birla justified that the valuation, saying it is only 7.2 times the expected operational profit.

With both Novelis and Aleris operating in the same segment, the acquisition will also lead to a host of synergies to the tune of $150 million per annum on a recurring basis, Birla said, adding the acquisition is also margin accretive.

With the leveraged deal, Novelis' $3.5 billion debt will increase by $2.6 billion, chief financial officer Dev Ahuja said.