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Novelis snaps up Aleris

Deal will cement Aditya Birla Group flagship Hindalco’s position as the top value added aluminium product player
Kumar Mangalam Birla
Kumar Mangalam Birla
Telegraph file picture

Our Special Correspondent   |   Calcutta   |   Published 14.04.20, 09:07 PM

Novelis, the wholly owned subsidiary of Hindalco Industries, has completed the acquisition of value added aluminium product manufacturer Aleris Corporation for $2.8 billion (Rs 21,200 crore), making it one of the few cross border international deals to conclude in the turbulent economic environment triggered by the Covid-19 pandemic.

The deal, which was nearly two years in the making as it had to navigate through multiple regulatory hurdles, will cement Aditya Birla Group flagship Hindalco’s position as the top value added aluminium product player.

The enterprise value (EV) disclosed on Tuesday is higher than the $2.58 billion declared when the deal was first announced on July 26, 2018. The company said Aleris’s debt levels have increased since the initial acquisition announcement because of a rise in working capital to support the ramp up of its operations and an additional payment. However, as Aleris performed better than expected, the EV multiple remained at 7.2x as announced before, allaying the apprehension of market analysts.

The acquisition of the US-based rolled products major will put Hindalco as one of the world’s largest aluminium companies, with a global footprint spanning 49 state-of-the-art manufacturing facilities in North America, Europe and Asia.

Commenting on the deal, Kumar Mangalam Birla, chairman of Aditya Birla Group, said: “The closure of this deal amidst challenging market conditions, reflects our conviction in the Aleris business and its value to our metals portfolio. Periods of turmoil have historically seen the emergence of champions, powered by quality leadership and sound business fundamentals. This is a long-term strategic bet, much like Novelis was in 2007.”

Beyond strategic benefits, the acquisition will generate approximately $150 million in synergies and create a strong financial profile, the company said.

Novelis will acquire Aleris’s 13 plants across North America, Europe and Asia. However, to satisfy regulatory conditions, it will have to divest Aleris’s plants in Duffel, Belgium, to Sanjiv Gupta owned Liberty House and in Lewisport, Kentucky, USA, for which a buyer is being sought. Based in Cleveland, Ohio, Aleris will provide Hindalco access to the aerospace industries and consolidate operations in China, where it has the Zhenjiang facility. Integration will start immediately, except the two plants slated for sale.

“The Aleris acquisition takes forward our aluminium value-added products strategy and gives us entry into high-end aerospace. It 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,” said Satish Pai, managing director of Hindalco Industries.

The closing purchase price of $2.8 billion consists of $775 million for the equity value, $2.0 billion for the assumption or extinguishment of Aleris’ outstanding debt and a $50 million earn-out payment.

Aleris closed the year 2019 with $3.37 billion in revenue and EBITDA of $338 million. The company would have net debt of $1.9 billion.

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