Aleris deal makes Hindalco world's largest aluminium products firm

The Aditya Birla Group flagship Hindalco has further cemented its position as the world's largest producer of value-added aluminium products with the completion of the USD 2.8 billion acquisition of Aleris by its wholly-owned US subsidiary Novelis Inc.

The acquisition of the US-based rolled products major Aleris Corporation positions Hindalco as one of the world's largest aluminium companies, with a global footprint spanning 49 manufacturing facilities in North America, Europe and Asia, the group said in a statement.

The Birlas had announced acquisition of the privately held the Cleveland, Ohio-based Aleris in July 2018 for USD 2.58 billion when the rupee was trading much higher than now. The company has production facilities in North America, Europe and Asia.

The deal, closed at an enterprise value of USD 2.8 billion or at 7.2 times, offers Hindalco potential synergy benefits of USD 150 million on a recurring basis and also marks Novelis' entry into the high-end aerospace segment.

It also offers Hindalco a large foothold into the Chinese fully integrated metal value-chain as Aleris runs a facility in Zhenjiang.
It also positions Novelis as the leader in the US building and construction segment.

Satish Pai, the managing director of Hindalco, said beyond the many strategic benefits, the deal will generate around USD 150 million in synergies and creates a strong financial profile.

However, the deal closure takes the combined net debt to 3.3x, which Pai claimed is within the latest guidance of under 3.5x and well below the initial outlook of 4x when the transaction was announced.

The closing price of USD 2.8 billion consists of USD 775 million for equity value, as well as around USD 2 billion towards extinguishing Aleris' outstanding debt and a USD 50 million earn-out payment.

The Aleris deal marks a major milestone for Hindalco and Novelis, on their path to global leadership. The closure of this deal amidst challenging market conditions reflects our conviction in the Aleris business and its value to our metals portfolio,? Kumar Mangalam Birla, the chairman of the Aditya Birla Group was quoted as saying in a statement.

Comparing the Aleris deal as ?a long-term strategic bet, much like the Novelis deal was in 2007, he said this deal enables further diversification of his group's metals downstream portfolio, into other premium market segments, most notably aerospace.

?By creating an industry champion, we are reinforcing our commitment to our customers, employees and shareholders. At the same time, with this further expansion of our aluminium portfolio, we have taken a decisive step towards a more sustainable future, Birla said.
By adding Aleris' operational assets and workforce, Novelis is poised to more efficiently serve the growing Asia market by integrating complementary assets in the region including recycling, casting, rolling and finishing capabilities, he said.

?The acquisition takes forward our aluminium value-added products strategy and gives us entry into high-end aerospace. It further insulates us 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,? Paid said.

Steve Fisher, president and CEO of Novelis Inc said with a world-class workforce, a presence in the most competitive and technically demanding end-markets, and the ability to deliver rapid, adaptive and sustainable solutions, Novelis will be able to even better serve our customers.

Novelis will acquire Aleris' 13 plants across North America, Europe and Asia. But to meet regulatory conditions, it will divest the plants in Lewisport, Kentucky, the US, and Duffel in Belgium, as announced earlier.

With a revenue of USD 18.7 billion in FY19, Hindalco is the world's largest aluminium rolling and recycling company and also a major copper player apart from being Asia's largest producer of primary aluminium.

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Its wholly-owned subsidiary Novelis Inc is the world's largest producer of aluminium beverage cans and the largest recycler of used beverage cans.

Hindalco's global footprint spans 36 manufacturing units across 10 countries.