Twitter
Advertisement

Hindalco's Novelis acquires debt-laden US firm Aleris

The deal involves payment of $775 million in cash towards equity and absorption of $1.8 billion debt

Latest News
article-main
Kumar Mangalam Birla
FacebookTwitterWhatsappLinkedin

With Hindalco's wholly-owned subsidiary Novelis Inc announcing the acquisition of US-based Aleris Corporation on Thursday, Kumar Mangalam Birla-promoted group will become the world's largest downstream aluminium player and will also foray into aerospace and defence.

Novelis Inc will buy out Aleris Corporation for an equity value of $2.58 billion in a debt finance deal, which involves payment of $775 million in cash for the equity component and absorption of $1.8 billion debt. The signing of a definitive agreement was announced on Thursday.

This acquisition comes after Hindalco had bought Novelis Inc in 2007 for $6 billion.

Aleris Corporation is into automotive, aerospace, architecture & design, recycling, building & construction, commercial transportation, consumer goods, industrial products, heat exchanger and packaging having manufacturing facilities at US, Europe and China. Whereas, Novelis Inc. is into manufacturing of aluminium for beverage cans, architecture, consumer electronics, packaging and car parts having plants at North & South America, Europe and Asia.

Aleris already has long-term contracts from Airbus, The Boeing Company, and Bombardier. A senior Novelis executive shared that the company is looking forward to the aerospace sector, which is a 'high-margin' business.

While making the announcement, Kumar Mangalam Birla, chairman, Hindalco, said, "The acquisition is value-accretive from the first year itself, both in terms of cash flows and net profit, which is rare for acquisition as big as this."

The discussions between Novelis and Aleris had been going for over a year now and the deal is expected to close in another nine to 15 months.

The definite agreement signed also has a clause for revenue sharing. As per the terms, the excess revenue earned beyond the business plan between 2018-2020 will be shared equally between Novelis and Aleris, with a cap of $50 million.

On the deal, Rahul Prithiani, director, Crisil Research, commented, "Due to the current capacities in domestic market still being in excess of demand, it becomes imperative to focus on investments in downstream product market globally. Further, manufacturing capacity in some of the US and EU markets de-risks from any trade-related disruptions on account of change in duty structure."

Similarly, Anjani K Agrawal, partner and global steel leader, EY, said that given the global sanctions scenario, "The timing seems opportune as capital investments by Aleris within the US will be leveraged in a more favourable trade policy environment."

Agrawal also said, "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 trailors and construction sectors. Consolidation of both players with focus on technology and know-how will be immensely value-accretive over a long term for the entire aluminium business."

The deal with Hindalco's Novelis happened after aluminium giant China Zhongwang called off Aleris Corporation's acquisition in 2017. The $2.3 billion deal was terminated by the Hong Kong-listed company after the deal deadline was extended five times and the process went on for 15 months.

In 2009, Aleris Corporation had declared bankruptcy in the backdrop of the global financial crisis as well as the debt pile the company was in.

METAL METTLE

  • The deal involves payment of $775 million in cash towards equity and absorption of $1.8 billion debt 
     
  • Hindalco forays into aerospace and defence with the buy
Find your daily dose of news & explainers in your WhatsApp. Stay updated, Stay informed-  Follow DNA on WhatsApp.
Advertisement

Live tv

Advertisement
Advertisement