Novelis-Aleris deal: The major deal between Kumar Mangalam Birla-led Novelis with Artelis comes after the US-based firms’ failed merger with a Chinese firm. Notably, eight months ago a Hong Kong-listed aluminium products group China Zhongwang, abandoned the $2.3 billion deal after struggling to get US regulatory clearance. The Cleveland, Ohio-headquartered Aleris is owned by private equity funds Apollo Management and Oaktree Capital Management. Last year, the Chinese company Zhongwang had called off merger talks with it after it failed to get US government approvals, PTI reported.
Notably, Zhongwang USA, the American-arm of China Zhongwang announced its intention to buy Aleris in August 2016. The deal came under fire from lawmakers, who said Aleris produced and tested specialized alloys used by the defense industry, and its research and technology were critical to U.S. economic and national security interests. In April, the U.S. Commerce Department opened an investigation to determine whether a flood of aluminum imports from China and elsewhere compromised U.S. national security, Reuters had reported.
With this acquisition under his belt now, Birla said that it will help the company to improve its product portfolio, and also include more premium segments to meet rising demand from China. “Aleris is a global supplier of aerospace as well as automotive sheets. It is a leader in the building and construction segment and the truck trailer segment. This acquisition complements our strategy to include premium segments, which have not been present so far, especially the high end aerospace domain,” he said.
Terming the acquisition as a “value accretive”, Birla said he expects the transaction to be completed over the next 9-15 months. Notably, the acquisition is slated to increase Hindalco’s play in the automotive segment–Birla expects the contribution of this segment to move up by 2 percentage points to 22% of the group’s revenue pie–and also diversify the product mix by adding the crucial aerospace segment. 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 USD
3 billion in 2017 and is expected to clock an operational profit of USD 360 million this year, reported PTI. In a press meet yesterday 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 USD 150 million per annum on a recurring basis, Birla said, adding the acquisition is also margin accretive.
