Novelis firm on Aleris Corp acquisition as US files antitrust suit

Aditya Birla Group company Hindalco Industries on Thursday faced a regulatory hurdle from the US Department of Justice (DOJ) on the Novelis-Aleris deal even as the European Union’s (EU’s) approval on this has almost been secured.
 
The American department has filed a civil antitrust lawsuit to block the purchase by Novelis, Hindalco’s US subsidiary. The case cited the need to preserve competition in the North American market for rolled aluminum sheet for automotive applications.
 
In response, Novelis said it was committed to closing its acquisition of Aleris Corporation, notwithstanding the DOJ lawsuit.
 
The DOJ and Novelis have agreed to refer the matter to a binding arbitration, given the differences in calculating the market size, among other things.
 
Novelis, one of the leading aluminum rolling and recycling companies, is planning to defend itself against the DOJ’s challenge, which is “without merit”, according to a company statement issued on Thursday. “If this acquisition is blocked, we believe it would be negative for Hindalco, given that aerospace and auto body sheets are the two biggest attractions of Aleris,” said Emkay Research in its morning report on Thursday.

So far...
 
2007: Hindalco buys US-based Novelis for $6 billion all-cash deal
August 2017: Hindalco evaluates Aleris Corp
July 2018: Hindalco announces acquisition of Aleris Corp for $2.6 billion

 The lawsuit is premised on the contention that the only relevant competition among automotive body sheet providers is that among aluminum manufacturers such as Novelis and Aleris.
 
It ignores competition from steel automotive body sheet, even though steel is currently used for nearly 90 per cent of the market, said Novelis.
 
Novelis said by focusing on just a small slice of steel-aluminum competition and ignoring the broader competitive process, DOJ’s premise contravened well-established principles of market definition.
 
“With premium valuations at which the deal (Novelis' acquisition of Aleris) has been agreed upon, we believe the retention of the auto body sheet business is essential for the deal to be value-accretive for Hindalco,” said the Emkay report.
 
In July last year, Novelis announced signing a definitive agreement to acquire Aleris Corporation, a global supplier of rolled aluminium products, for approximately $2.6 billion, including the assumption of debt.
 
In Q2 CY19, Aleris shipped 232,000 tonnes of the metal, in which the aerospace business grew 20 per cent and the auto body sheet business grew 56 per cent, driven largely by the US business.
 
It reported earnings before interest, taxation, depreciation and amortisation of $108 million for the quarter. Of this North America contributed $76.5 million.
 
This, however, is not the first time the deal is facing a regulatory hurdle. Earlier this year, the deal faced antitrust objections at the European Commission.
 
Hindalco has submitted remedial measures to the EU and the outcome is likely even before the set date of October 7, Satish Pail, managing director of Hindalco had told reporters on the sidelines of the company's annual general meeting, without divulging the details of the remedial measures.
 
Despite the unexpected development of DOJ, Novelis on Thursday said that the DOJ suit was not an impediment to closing the transaction by January 21 next year, by when it has to be completed under the merger agreement even if a remedy was required to address the DOJ’s competitive concerns. “The remedies (to DOJ) would be in line with what the company has done in the case of remedial measures with respect to the EU,” said a person close to the development.
 
In the EU case, Novelis has agreed to sell Aleris’ Belgian plant to address the European Commission’s worries that the deal might reduce competition and lead to higher prices, hitting carmakers in particular, reports said last week.
 
Novelis is confident the transaction will receive all necessary regulatory approvals in the US and in other relevant jurisdictions, it said in the release.