Comments
Hindalco Industries has completed the much-delayed acquisition of Aleris, a US-based rolled products major, for $2.825 billion through its wholly owned US subsidiary Novelis.
The deal is expected to have synergy benefits worth $150 million on a recurring basis.
The purchase price of $2.825 billion consists of $775 million for the equity value, about $2 billion for extinguishing Aleris’ current outstanding debt, and a $50-million earn-out payment based on Aleris meeting specified commercial margin targets.
The deal will be funded by a one-year bridge loan of $1.10 billion at 0.95 per cent and a five-year term loan of $775 million at Libor (London Interbank Offered Rate), plus 1.75 per cent, besides an equity investment of $0.9 billion.
To close the deal, Hindalco, however, is required to divest Aleris’ plants at Lewisport (US) and Duffel (Belgium), as announced earlier.
Hindalco first announced the acquisition of Aleris for $2.58 billion in July 2018. The $2.58-billion cash deal had then valued Aleris at about seven times its forward EV/EBITDA (enterprise value/earnings before interest, tax, depreciation and amortisation).
But the closing purchase price increased to $2.8 billion due to higher-than-estimated earnings and a rise in debt levels at Aleris. For the 12 months ended December 31, 2019, Aleris’ adjusted EBITDA stood at $388 million. This values Aleris at 7.2 times its adjusted EBITDA of the trailing 12 months, as also announced by Hindalco.
But, Hindalco has not factored in the Lewisport and Duffel plants as discontinued operations while considering the said EBITDA of $388 million.
According to various reports, the estimated earnings and valuations of these units are at $150 million and $1 billion, respectively.
Taking this into account, a back-of-the-envelope calculation reveals the valuations of Aleris at 7.35 times its EBITDA of trailing 12 months.
Note that the synergy benefit of $150 million, which is expected to take considerable time to realise amid the current subdued outlook, was not considered for valuing the company.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.