$2.8 billion Aleris Corp deal puts Hindalco in global aerospace spotlight

Novelis Inc's acquisition of the American aluminium rolled products maker Aleris Corporation for $2.8 billion has lifted the clientele of Aditya Birla group to a new trajectory with additions like Boeing, Airbus and Bombardier. Aleris is a major supplier of metal sheets, used in building aircraft body, to American aerospace giants.

On Tuesday, Hindalco Industries, the non-ferrous metals arm of Aditya Birla group, completed the acquisition of the Aleris through its Atlanta-based subsidiary Novelis, which already has clients like Coca-Cola, AB Inbev, Ford Motor Company, Jaguar Land Rover and Samsung.

Beverage industry sales (mainly cans) accounted for 60 per cent of Novelis' volume, while automotive and specialty end markets accounted for 20 per cent each. With the acquisition, the volume share will change as aerospace is the major business for Aleris.

In February last year, Aleris was recognised as a Bombardier Diamond Supplier for its outstanding performance as a supplier of aluminum aerospace products from Aleris production facilities in Koblenz, Germany and Zhenjiang, China. In the next month, Aleris was recognised for the second consecutive year as the accredited supplier by Airbus. Aleris entered into a multi-year agreement with Boeing in 2018 to supply aluminium plate and sheet for a variety of its aircraft.

The acquisition of Aleris 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. It will cement Hindalco's position as the world's top aluminium value-added products player.  

The acquisition has been considered as risky since the global markets are crashing and demand going haywire. But Kumar Mangalam Birla, Chairman, Aditya Birla Group, says that the deal is a long-term strategic bet, much like Novelis acquisition in 2007. The deal further diversifies the downstream portfolio, into other premium market segments, most notably aerospace, he added.

"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," said Satish Pai, Managing Director of Hindalco.

The closing purchase price of $2.8 billion consists of $775 million for the equity value, as well as approximately $2 billion of outstanding debt and a $50 million earn-out payment. On a trailing twelve-month basis ending December 2019, legacy standalone Aleris adjusted EBITDA at $388 million. Beyond its many strategic benefits, the acquisition will generate approximately $150 million in synergies and create a strong financial profile, said the company.

Novelis will acquire Aleris' 13 plants across North America, Europe and Asia. However, to satisfy regulatory conditions, the company is required to divest Aleris' plants in Lewisport (the US), and Duffel (Belgium). Aleris will be selling this to UK-based Liberty House for $337 million. The two deals will help Novelis to reduce the acquisition cost further. The only worry is that the sale realisation will be delayed in considering current market condition.

Also read: Hindalco share price rises 9% on $2.8 billion deal to acquire US-based Aleris