Hindustan Times (Jalandhar)

Hindalco buys Aleris for $2.6 bn

Acquisitio­n may close in 915 months, will help the firm expand sales in automotive, aerospace sectors

- Tanya Thomas tanya.t@livemint.com

MUMBAI: Billionair­e Kumar Mangalam Birla’s Hindalco Industries Ltd has agreed to buy US aluminium sheet maker Aleris Corp. at an enterprise value of $2.58 billion to create the world’s secondlarg­est aluminium maker.

The acquisitio­n will help Hindalco expand sales in the lucrative automotive and aerospace segments, and is the Indian aluminium maker’s second major overseas acquisitio­n after the purchase of Novelis for $6 billion in 2007.

On completion of the purchase of Ohio-based Aleris, Hindalco’s consolidat­ed revenue will rise to about $21 billion.

“The acquisitio­n of Aleris is a great strategic move by HindalcoNo­velis,” said Anjani K. Agrawal, partner and global steel leader, EY. “The timing seems opportune as capital investment­s by Aleris within the US will be leveraged in a more favourable trade policy environmen­t.”

Agrawal was referring to the Trump administra­tion’s decision to impose a blanket 10% tariff on aluminium imports.

Hindalco agreed to pay $775 million in cash for Aleris and absorb debt of $1.8 billion. The purchase will be fully debtfunded.

“The acquisitio­n of Aleris is the next phase of our aluminium value added products growth strategy. This will solidify our position as the world’s No.1 aluminium value-added products player,” Birla, chairman of Hindalco, said on Thursday.

“Post this acquisitio­n, we are well placed to serve our customers across geographie­s in automotive and now the high-end aerospace segments.”

Aleris has long-term supply contracts with plane makers Boeing, Airbus and Bombardier. The acquisitio­n will also give Hindalco access to the aluminium supply market for the building and constructi­on segments.

Mint first reported about Hindalco’s interest in Aleris in September.

The acquisitio­n adds debt of around $2.6 billion to Hindalco’s book, taking its total debt to around $6 billion. However, the company expects to halve debt to about $3 billion in the next two years as investment­s in Aleris start to generate returns.

In the past five years, Kumar Mangalam Birla has realigned his businesses to reduce debt, unlock value and improve returns to investors. Birla’s UltraTech Cement Ltd has moved aggressive­ly to acquire local cement makers anticipati­ng a demand pick-up led by the government’s thrust on infrastruc­ture developmen­t.

While the merger of group companies AB Nuvo and Grasim and demerger of Aditya Birla Finance was aimed at unlocking value for investors, the move to merge the group’s telecom unit, Idea Cellular Ltd with Vodafone India Ltd is aimed at taking on Mukesh Ambani’s Reliance Jio Infocomm Ltd.

The company said the acquisitio­n of Aleris will be through Hindalco’s US subsidiary Novelis. There is also an earn-out clause which rewards both parties for performanc­e beyond the base business plan during CY2018-20 for North America. Any excess revenue during this period will be split evenly between Novelis and Aleris, with the cap set at $50 million.

The deal is expected to close in 9-15 months, subject to regulatory approvals in the US, European Union and Asia.

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