It was never going to be a straightforward takeover.
India’s Aditya Birla Group as the owner of Hindalco — and, therefore, Novelis — cemented its position as the world’s largest producer of value-added aluminium products with the completion of the USD 2.8 billion acquisition of Aleris last year.
However, approval from the U.S. Justice Department has been pending ever since the deal was announced in March last year.
Combined, Novelis and Aleris are said to control some 60% of the U.S. automotive aluminum sheet market, raising fears the dominant position would seem too dominant a position for the merged company.
Hindalco and Novelis are a global company with 49 manufacturing facilities in North America, Europe, and Asia, according to CNBC, and revenues of some U.S. $12.3 billion last year.
Aleris, while much smaller (with 13 facilities across North America, Europe, and China and revenues of U.S. $3.4 billion), holds an outsize role in automotive sheet through its Lewisport, Kentucky plant. The plant includes a 350 kt hot mill and a 200 kt automotive cold mill serving the North American market.
European approval was given last year on the basis Novelis would sell Aleris’ Duffel mill in Belgium, which comprises an 80 kt automotive sheet line and an additional capacity of 100 kt in other specialty products. The sale of Duffel was agreed to Liberty House’s GFG Alliance, which also acquired the Dunkerque aluminum smelter from Rio Tinto in December 2018.
Hindalco knew the loss of Aleris’ Lewisport mill was likely the cost of approval but it tried to persuade the Justice Department that steel and aluminum sheet for automotive applications should be taken as one market, not two. Seen in that context, Novelis/Aleris do not hold anything like a dominant position, arguing some 90% of all automotive sheet is still steel.
The Justice Department thought otherwise and ruled against the company.
Approval is still needed in China to finalize the deal, but the sale of Duffel and Lewisport clears two of the largest hurdles. The ruling will reduce the cost to Novelis at a time when sales are severely depressed and debt taken on to fund the purchase is having to be funded by much-reduced revenues. Indeed, much of the acquisition cost was legacy debt in Aleris, the underlying company sold for just U.S. $775 million but came with U.S. $2 billion of legacy debt which Novelis has funded in part by taking on a short-term U.S. $1.5 billion bridging loan.
For consumers, the Justice Department’s decision is beneficial in the short term; maintaining a more competitive supply market will help keep down prices for consumers.
In the longer term, the future security of Lewisport is paramount. The new owners will need to be sufficiently well funded and experienced in the aluminum automotive sheet market to ensure the site’s long-term viability.
The last thing consumers need is increased short-term competition at the price of long-term supply security.
High-quality aluminum sheet supply in North America is already challenged enough as it is, current COVID-19 disruptions excepted.