Aditya Birla’s bid likely to value Aleris at $2.5 billion
$1 bn to be invested through equity, $1.5 bn for refinancing debt
MUMBAI: Billionaire Kumar Mangalam Birla’s Aditya Birla Group is readying a bid for aluminium maker Aleris Corp, according to two people directly aware of the development.
The group’s bid may assign a $2.5 billion enterprise value for Cleveland, Ohio-based Aleris, the people cited above said on condition of anonymity.
The offer, which may come as soon as the first week of October, will include an investment of close to $1 billion through equity and debt, and refinancing of the company’s debt of around $1.5 billion, said one of the two people.
Birla’s decision to pursue Aleris comes at a time when demand for aluminium products from industries such as automobiles and aerospace is growing at a fast pace amid favourable metal prices. “If you have a long-term view on the commodity cycle and if you think the asset adds to your business either via market access or via new technology, then one would like to look at such opportunities. Given the direction the market is moving in terms of commodity prices, large Indian players in the commodity space will likely look at such opportunities,” said Harish HV, partner, Grant Thornton India Llp.
The group was planning to make an offer in the first week of September but had to hold back its bid after Aleris extended its exclusivity period for talks with Chinese aluminium producer Zhongwang till end of September, according to the second of the two people cited above. Zhongwang has been in talks to acquire Aleris since last year but the deal has not closed yet, this person added.
“Birla’s bid hinges on the final outcome of the talks with Zhongwang, which have been extended to the end of September,” the person said.
The Zhongwang transaction has faced regulatory hurdles in the US. Media reports, earlier this month, said the deal was yet to be approved by the Committee on Foreign Investment, a US government body that reviews foreign investments in domestic firms, and determines whether those potential investments may impact national security.
A spokesperson for the Aditya Birla Group said that the group does not comment on market speculation.
“We do not comment on market rumours. We remain in discussions with Zhongwang USA on the pending acquisition of Aleris. To allow those talks to continue, we have decided to extend our merger agreement through September 29,” a spokesman for Aleris in the US said in an emailed response to a query.
Aleris makes rolled fabricated aluminium products and has 13 manufacturing facilities across North America, Europe and China, according to the company’s website. The company supplies to industries, including aerospace, defence and transportation, among others.
Aleris’s revenue declined 8.6% to $2.66 billion in 2016 from $2.91 billion in the previous year. It reported a loss of $76 million in 2016 compared to a profit of $49 million in the previous year.
Mint reported on September 4 that the Aditya Birla Group has earmarked as much as $3 billion for overseas acquisitions in its aluminium business under Hindalco Industries Ltd. Earlier in March, Hindalco raised around $500 million through a qualified institutional placement offering, which it said was planned to be used for acquisition opportunities and debt repayment.
In August, Bloomberg reported that the group is evaluating possible bids for Constellium NV and Aleris as the Indian conglomerate seeks to grow its aluminium operations overseas.
“They are no longer interested in Constellium but are considering bidding for Aleris, which the group thinks will be a good fit for its existing business in North America and other markets,” said the first person cited earlier.
The acquisition of Aleris, if successful, will be Aditya Birla Group’s second major overseas acquisition in its aluminium business.
In 2007, Hindalco made its biggest downstream bet when it acquired US-based aluminium cans and packaging material maker Novelis Inc for $6 billion.
Since the start of 2017, shares of Hindalco have gained almost 46%. On Friday, the stock closed at ₹231.30 on the Bombay Stock Exchange (BSE).