Birla's takeover bid of Aleris hangs on Chinese firm Zhongwan's offer

Attractiveness of Aleris is because the industry is operating near full capacity while demand continues to grow in auto, aerospace sectors

Aditya Birla group’s takeover bid of aluminium parts maker Aleris depends on the fate of Chinese company’s Zhongwang’s takeover offer for the company. Both Aleris and Zhongwang have announced a merger plan and have extended their talks till this month-end.

A Birla official said the group is keen to make a bid but is waiting till both Zhongwang and Aleris announce a formal decision not to go ahead with the merger proposal announced earlier. 

The takeover bid would cost around $3 billion to either company that also includes the debt. Birla group firm, Hindalco would make the bid via its American subsidiary Novelis, which it took over in 2007 for $6 billion. Hindalco's stock was down 2.2 per cent on Monday afternoon trades even as the broader BSE Sensex was down 1.1 per cent.

The Chinese proposal is facing regulatory hurdles in the United States (US) and the extension of talks between Zhongwand and Aleris follows multiple snags in getting approval from the Donald Trump-led government.

The attractiveness of Aleris for both the Chinese firm and  Birla is due to the fact that the industry is operating near full capacity while demand continues to grow in the auto and aerospace sectors at more than  8 per cent compound rate.

Other factors that are hampering the deal include a recent US Commerce Department's decision to levy duties on Chinese aluminium foil. Further, the prospect of measures that may result from the Trump administration’s investigation into national-security threats posed by aluminium imports is also affecting the deal.

“Domestic prices are increasing and will increase if duties are imposed on imports of flat-rolled products,” Jorge Vazquez, managing director of Austin, Texas-based Harbor Intelligence, told Bloomberg.