What does acquiring Aleris Corp Mean for Hindalco’s Novelis?

Aditya Birla Group company Hindalco Industries Ltd’s subsidiary, Novelis Inc., has acquired the US aluminium company Aleris Corporation for USD 2.58 billion. The acquisition will see Novelis’ entry into the high-tech aerospace sector and access to a higher number of customers in the auto industry.

The deal, which includes USD 775 million of equity and USD 1.8 billion of debt, will be funded through Novelis. With the consideration of customary closing conditions and regulatory approvals, the deal will be complete in the next nine to fifteen months.

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Kumar Mangalam Birla, chairman of Aditya Birla Group said, “The acquisition of Aleris is the next phase of our growth strategy. This will solidify our position as the world’s No.1 aluminium value-added products player. We will have a presence throughout the downstream aluminium value chain in Asia, positioning us for future growth in the region,” he added.

The acquisition will give Novelis 13 Aleris manufacturing facilities spread across North America, Asia, and Europe. This will widen Hindalco’s reach on a global basis to not just established markets in the US and Europe but also the emerging markets of Asia. According to Business Today, the acquisition is accretive for Hindalco with a USD 150 million potential on a recurring basis.

ET quoted Birla, “Aleris is in the same space as Novelis which is aluminium controlled products. Novelis is the world leader globally, the largest in every market that it is in. Aleris is a very high quality, large player, with revenue of about USD 3 billion. It has 13 very hi-tech manufacturing sites across Europe, the US and China. It gives Novelis a stronger franchise in the auto market and therefore solidifies its position in the auto market.”

Since Hindalco’s acquisition of Novelis in August 2007, Novelis has become the world numero uno in aluminium value added products in terms of size, especially in the automotive and beverage cans space. The current acquisition opens doors to Novelis to the high-tech aerospace domain.

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The acquisition has happened in the wake of the Trump administration’s scrutiny of Chinese companies trying to acquire American ones. Hindalco saw its chance when a potential deal between Chinese company Zhongwang USA LLC and Aleris went south. While that deal was priced at USD 2.33 billion, Birla has paid a premium. Many are questioning the higher price Novelis has paid for the Cleveland-based firm. However, the reason cited for this by experts is that around USD 900 million of Aleris’ investments are yet to show yields. When they do so in due course, Hindalco’s debt, which this acquisition has taken up to USD 6 billion, will reduce to USD 3 billion, i.e. USD 500 million less than their current debt.

Birla also told ET that for the Hindalco Group as a whole, the proportion of value-added products will grow exponentially after this deal. “It takes the value added part to about 70% plus from practically zero about 10 years ago. It also makes the Hindalco combine the largest aluminium company in the world with the turnover of about $21 billion,” he said.