MUMBAI : Nearly two years after signing a deal to take over Ohio-based aluminium rolled products maker Aleris Corp, billionaire Kumar Mangalam Birla’s Hindalco Industries finally completed the acquisition on Tuesday through its subsidiary Novelis Inc. The enterprise value of the deal, at $2.8 billion, is slightly higher than the initial estimate of $2.58 billion. With the deal closure, Hindalco is now one of the world’s largest aluminium makers.
“The Aleris deal marks a major milestone for Hindalco and Novelis, on their path to global leadership. The closure of this deal amid the challenging market conditions, reflects our conviction in the Aleris business and its value to our metals portfolio," Kumar Mangalam Birla, chairman, Aditya Birla Group, said in a press note. “This is a long-term strategic bet, much like Novelis was in 2007. The Aleris deal, crucially, enables the further diversification of our metals downstream portfolio into other premium market segments, most notably aerospace."
Aleris has long-term supply contracts with aircraft makers Boeing, Airbus and Bombardier. The acquisition will also give Hindalco access to the aluminium supply market for the building and construction segments. While the deadline for the deal closure was January 2020, the delay was due to regulatory hurdles.
Through the deal, Novelis will acquire Aleris’ 13 plants across North America, Europe and Asia. The company was awaiting regulatory clearances from China, the EU and the US. In order to prevent a concentration of aluminium supply in the European market, the EU regulator required Aleris to divest its Duffel, Belgium, plant. Aleris will be selling this to UK-based Liberty House for $337 million. Aleris also needs to divest its rolling mill at Lewisport, Kentucky, and its 200 kilotonne (kt) automotive finishing line in order to satisfy regulatory requirements from the department of justice. The sale of both these plants will proportionately reduce the acquisition price for Novelis and Hindalco.
As of now, the closing purchase price of $2.8 billion consists of $775 million in equity value, besides approximately $2 billion for the assumption or extinguishment of Aleris’ current outstanding debt, and a $50 million earn-out payment. Legacy Aleris debt levels have increased since the initial acquisition announcement due to rising working capital requirements to ramp up operations, while the earn-out is related to stronger-than-expected performance by Aleris’ US business, the press release said.
Beyond its many strategic benefits, the acquisition will generate approximately $150 million in synergies and create a strong financial profile. In addition, combined net debt to adjusted EBITDA of approximately 3.3x is within the recently updated guidance of below 3.5x, and well below the initial outlook of below 4x, it added.
“The Aleris acquisition takes forward our aluminium value-added products strategy and gives us entry into high-end aerospace. It further insulates Hindalco-Novelis from global price volatility and sharpens our focus on the downstream business. Aleris enhances our strategic position in Asia and also solidifies our position as a leading global metals player, with a stronger presence across the US and Europe as well. I thank the team for closing this important deal," said Satish Pai, managing director, Hindalco Industries.
