With Aleris buy, Hindalco is world’s No.2 aluminium co

Novelis Inc, a wholly-owned subsidiary of Hindalco Industries, has signed a definitive agreement to acquire Aleris Corporation, a global aluminium rolled products major headquartered in the US, for $2.58 billion in a fully debt-financed deal.

Novelis will pay $775 million in cash for the equity component and take over debt of $1.8 billion on the books of Aleris. In addition, it will pay $50 million if the combined entity achieves certain revenue targets. The deal is expected to be completed in 9-15 months.

Aleris is privately held by PE firms Apollo Management, Oaktree Capital Management and Sankaty Advisors.

Post deal, Novelis’ net debt will increase to $6.1 billion while the net-debt-to-Ebitda will go up to four times and the same on Hindalco’s consolidated books will increase to 3.5 times. However, the company expects to bring down the net-debt-to-Ebitda to three times on Novelis’ books and below three times on Hindalco’s consolidated books in two years.

Hindalco will become the world’s second largest aluminium company after the deal. Its value added product capacity will go up to 4.7 mt and combined capacity will be 6 mt.

Of the overall revenue of $21 billion, Novelis and Aleris combine will contribute about $15 billion. The Group will employ 40,000 people. To start with, the deal will help save $150 million in synergy in Asia and integration of supply chain.

Aleris has invested about $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’ growth across regions.

The acquisition will also enhance the portfolio with the fast growing automotive segment and entry into the high-end aerospace segment.

Aleris’ wide base of manufacturing locations will deepen the combined entity’s presence in developed markets like the US and Europe and strengthen Novelis position in emerging markets of Asia.

Kumar Mangalam Birla, Chairman, Hindalco, said the Aleris deal will be value-accretive from day one.

"The acquisition of Aleris is the next phase of our aluminium value added products growth strategy and solidify the group's position as the world’s No 1 aluminium value added products player,” he said.

On the shares tumbling before the deal was announced, Birla said the investors’ reaction was on half-baked information and hoped that they will understand the deal.

Aleris’ modern Zhenjiang facility is close to Novelis’ facility in Changzhou enhancing their competitive position in Asia by giving it access to Shanghai Futures Exchange, metal integration 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.

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