Hindalco Industries has agreed to acquire U.S. based Aleris Corporation for an enterprise value of $2.58 billion in a move that will help Hindalco become a global leader in aluminium excluding China.
The acquisition will be done through Hindalco’s wholly owned subsidiary, Novelis Inc. The combined entity will have revenue of $21 billion and an employee base of about 40,000.
Debt-funded deal
“The $2.58 billion debt funded deal would be on the books of Novelis and the company would pay $775 million in cash for the equity portion,” said Hindalco Industries chairman Kumar Mangalam Birla, adding that after the acquisition, “we are well placed to serve our customers across geographies in automotive and now the high-end aerospace segments.”
Since Hindalco’s $6 billion acquisition of Novelis in August 2007, Novelis had further “invested $2 billion in the business over the last decade,” the company said in a statement, adding Novelis today was the world’s number one company in the aluminium value added product segment in terms of size and in segments like automotive and beverage can and its earnings had grown manifold since its acquisition.
“Acquisition of Aleris is a great strategic move by Hindalco-Novelis. Apart from pursuing value added segments, the rationale and key drivers include access to high growth sectors like automotive and transportation, entry into aerospace and defence, truck trailers and construction sectors,” said Anjani K. Agrawal, partner and global steel leader, EY, adding that the timing seemed opportune as capital investments by Aleris within the U.S. would be leveraged in a more favourable trade policy environment.
Aleris’s modern Zhenjiang facility, located proximate to Novelis’s facility in Changzhou, enhances Novelis’s competitive position in Asia by giving it access to SHFE (Shanghai Futures Exchange) and strengthening its market leadership as an aluminium sheet supplier in the world’s largest and fastest growing automotive market where electric vehicle demand is expected to grow significantly, requiring lightweight materials like aluminium for both batteries and car bodies, said the company.
Synergies in merger
“The merger will have synergies of $150 million. This also enhances the access to world-class manufacturing capabilities for our existing Indian aluminium value added operations and accelerates our path to making world-class products in India,” Mr. Birla added.
Aleris had invested approximately $900 million in the last few years in the automotive and aerospace businesses. The ramp-up of these capacities in the near-term will significantly bolster Novelis’s growth across regions and market segments.
The acquisition by Novelis is expected to close in 9-15 months subject to customary closing conditions and regulatory approvals.
