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Aditya Birla’s acquisition bid may value Aleris Corp at $2.5 billion

LiveMint logoLiveMint 24-09-2017 Deborshi Chaki

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.

“Given the direction the market is moving in terms of commodity prices, the large Indian players in the commodity space will likely look at such opportunities,” said Harish H.V., partner at 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 receive approval from 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 rumors. We remain in discussions with Zhongwang USA on the pending acquisition of Aleris. In order to allow those discussions 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, automotive, defence, building and construction, transportation, packaging and consumer goods.

Aleris’s revenue declined 8.6% to $2.66 billion in 2016 from $2.91 billion in the previous year. The company reported a loss of $76 million in 2016 compared to a profit of $49 million in the previous year.

Mint reported on 4 September 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 Rs3,300 crore (approximately $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 actively 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 around $6 billion.

Demand from carmakers, improvement in operational efficiencies and favourable metal prices boosted Novelis’s performance, Hindalco said in an investor presentation after the June quarter earnings.

Novelis saw record shipments in the quarter ended 30 June, with shipments increasing 4% to 785,000 tonnes, according to an investor presentation by Hindalco. The performance was driven primarily by the growth in shipments to automobile companies, which grew 16% from a year earlier.

Novelis also reported a record earnings before interest, taxes, depreciation and amortization (Ebitda) per tonne at $368 in the quarter ended June from $354 in the same period a year earlier.

Since the start of 2017, shares of Hindalco have gained almost 46%. On Friday, the stock closed at Rs231.30 on BSE.

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