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The US Department of Justice (DoJ) has rejected Novelis Inc, the US subsidiary of Hindalco Industries, bid to acquire Aleris Corporation on basis that the deal would eliminate competition in automotive body sheet manufacturing.
However, the company has decided to defend its case in an arbitration process and committed to close the proposed acquisition.
Novelis is confident that the DoJ suit is not an impediment to closing the transaction by January 21, 2020, even if a remedy is required to address the DoJ’s competitive concerns.
Completion of the transaction remains subject to independent regulatory approvals from the Chinese State Administration for Market Regulation and the European Commission.
Novelis had last year announced that it would buy Aleris Corporation, one of the largest aluminium producing companies in the US, for $2.6 billion. Earlier, the European Commission had suspended the deadline to clear the Novelis-Aleris acquisition on similar concerns.
In the unlikely event of losing the case, Novelis has to offer a remedy in order to receive approval for the transaction in the US, said the company without elaborating on what of kind of remedy it would offer.
The DoJ has ignored competition from steel automotive body sheet, which commands nearly 90 per cent market share, said Novelis in a statement.
“We are disappointed that the DoJ view, but confident that in the next phase of the process the full scope of the competition we face will be recognised appropriately,” said Steve Fisher, President and CEO, Novelis Inc.
Novelis merger with Aleris threatens no one but will strengthen aluminium industry ability to compete against steel, meet growing customer demand for aluminium and achieve recycling goals, he added.
To prevail in its lawsuit, the DoJ will need to prove that steel automotive body sheet does not significantly constrain the price and quality of aluminium automotive body sheet.
The DoJ does not deny that steel automotive body sheet usually competes with aluminium automotive body sheet, but instead contends that the constraint from steel is absent from some procurements.
Novelis believes that by focussing on a small slice of steel-aluminium competition and ignoring the broader competitive process, the DoJ’s theory contravenes well-established principles of market definition.
The DoJ also disregards the extraordinary bargaining power of the automotive manufacturers and their ability to generate bid processes that will ensure competitive pricing for automotive body sheet.
The company is confident that the transaction will ultimately receive all necessary regulatory approvals in the US and in other relevant jurisdictions.
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