Hindalco completes Aleris deal for $2.8 billion

Hindalco Industries, an Aditya Birla Group company, has completed the much-delayed acquisition of Aleris for $2.8 billion through its wholly-owned US subsidiary Novelis Inc even while complying with the regulatory directions.

The deal will be funded by a one-year bridge loan of $1.10 billion at 0.95 per cent and 5-year term loan of $775 million at Libor plus 1.75 per cent besides equity investment of $0.9 billion. Novelis has standalone liquidity of $1.9 billion as of December end.

Hindalco first announced to acquire Aleris for $2.58 billion in July 2018 and managed to completed the deal now when the global economy is in doldrums caused by Covid-19 pandemic.

However, the acquisition will catapult Hindalco as the world’s aluminium company with a global footprint of 49 modern manufacturing facilities in North America, Europe and Asia.

The company will start integration of Aleris into Novelis, excluding Lewisport and Duffel, as it has to be sold off to meet regulatory approvals. The Group is currently negotiating with Liberty House to close Duffel transaction, subject to China approval. It is also in discussion with the US Department of Justice to define timeline and terms for divestment of Lewisport.

Kumar Mangalam Birla, Chairman, Aditya Birla Group said that completion of the deal amidst challenging market conditions reflects the Group’s conviction in Aleris business and value it adds to metals portfolio.

Comparing the deal to that of Novelis in 2007, Birla said periods of turmoil have historically seen emergence of champions, powered by quality leadership and sound business fundamentals.

Satish Pai, Managing Director of Hindalco Industries, said that apart from many strategic benefits, the acquisition will generate about $150 million in synergies and create a strong financial profile.

The closing purchase price of $2.8 billion consists of $775 million for the equity value and about $2 billion for extinguishing Aleris’ current outstanding debt and a $50-million earn-out payment.

Aleris debt has increased since the initial acquisition announcement due to rise in working capital to support the ramp up of operations, while the earn-out is related to stronger than expected performance by Aleris’ US business.

The group has managed to keep the combined net debt to Adjusted EBITDA at about 3.3 times which is below the initial outlook of below 4 times at transaction announcement.

On a trailing twelve-month basis ending December 31, 2019, standalone Aleris Adjusted EBITDA stood at $388 million, higher than that estimated at the time of deal announcement. Despite the increase in legacy Aleris debt, the implied enterprise value multiple of 7.2 times, is in line with the Group’s acquisition case, on account of better EBITDA performance.

Steve Fisher, President and CEO, Novelis Inc, said the company will be able to service its customers better with acquisition of 13 plants of Aleris across North America, Europe and Asia.

However, to satisfy regulatory conditions, the company is required to divest Aleris’ plants in Lewisport, Kentucky, US and Duffel, Belgium, as announced earlier.

The acquisition deepens the Group’s aluminium value-added products strategy and provides entry into high-end aerospace space. It further insulates Hindalco-Novelis from global price volatility and sharpens focus on the downstream business with a stronger presence across the US and Europe.

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