Hindalco concludes buying Aleris

Equity Right

Hindalco completes Aleris buy through its subsidiary

The flagship company of the Aditya Birla Group, Hindalco through it’s subsidiary Novelis has completed the buyout of Aleris Corp. The buyout was completed on April 14th 2020, at an enterprise value of Rs 21,995 crore or USD2.8Bn. Hindalco stock jumped by 5% in early trading hour on the following day. The takeover by Novelis will allow the company to enter into the aerospace segment.

Novelis-Aleris deal concludes:

The deal was signed two years ago for the buyout of Aleris by Hindalco. The deal closure had a deadline which was January 2020 but due to regulatory hurdles the deal was delayed. Aleris was estimated to be valued at $2.58 Billion but was finally acquired for $2.8 Billion. This acquisition price includes equity valued at $775 Million and a current outstanding debt of $2 Billion of Aleris. The remaining $50 Million will be an earn-out payment.

This deal will allow Novelis to enter into the aerospace sector. Aircraft manufacturers like Airbus, Bombardier and Boeing are in business with Aleris as they have long-term supply contracts. Hindaco are set to benefit in their construction and building sectors by gaining access to the aluminium supply market.

Novelis are set to acquire 13 plants of Aleris across Asia, North America and Europe. They had to wait for regulatory clearances from the EU, China and the US. Aleris were required to divest its plant in Duffel, Belgium to limit the aluminium supply concentration in European markets. This plant will be sold at $337 Million to UK based Liberty House. They also need to divest its automotive finishing line and rolling mill in Lewisport, Kentucky to maintain regulatory requirements. This will help Hindalco and Novelis to cut down the acquisition price.

Valuation Play:

This acquisition will bring many strategic benefits as it is set to generate $150 Million in synergies approximately. A strong financial portrait will be created from this strategic benefits. The combined net debt to adjusted EBITDA is well below the updated guidance of 3.5x and initial outlook of 4x. The adjusted EBITDA is approximately 3.3x.

The Chairman of Aditya Birla Group stated that this deal will help Hindalco and Novelis towards global leadership. Even in the challenging market conditions, the deal was closed. This shows the firm belief in Aleris and its importance to the metals portfolio. This deal will allow to further diversify the portfolio into other premium market segments, particularly aerospace.

The legacy debt levels of Aleris have increased since the announcement of the initial acquisition. It was caused due to the increase in working capital to support the speed up of operations. A better EBITDA performance saw the implied enterprise value multiple in line with the acquisition case at 7.2 times. The earn-out was linked with the solid performance in the US by Aleris.

Aleris will allow Novelis to provide in the growing Asian market with the help of its operational assets and workforce. Novelis will integrate complementary assets including rolling, recycling, casting and finishing capabilities.


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