Hindalco faces US regulatory hurdle in Novelis-Aleris Corp deal

The US Justice Department is reported to have filed a civil antitrust lawsuit seeking to block the proposed $2.6 billion acquisition of US aluminum parts maker Aleris Corp by Hindalco’s US unit Novelis Corp, citing the need to preserve competition in the North American market for rolled aluminum sheet for automotive applications.

According to the Justice Department, the acquisition would enable Novelis to lock up 60 per cent of projected total US automotive body sheet capacity and the vast majority of uncommitted capacity, enabling the company to raise prices, reduce innovation and provide less favorable terms of service to the detriment of automakers and ultimately American consumers. 
“Automakers increasingly need aluminum auto body sheet to satisfy American consumers’ demand for larger vehicles that are lighter and more fuel-efficient,” Makan Delrahim, the head of the Justice Department’s antitrust division, said in a statement. “The loss of a competing supplier of aluminum auto body sheet ultimately would harm American car buyers.”
The lawsuit, however, ignores the fact that steel still accounts for almost 90 per cent of the automotive body sheet market.
Novelis said in a statement on Wednesday that the case isn’t expected to impede the closing of the deal by 21 January, “even if a remedy is required to address the DOJ’s competitive concerns.”
The deal also faced antitrust objections in the European Commission earlier this year.
Hindalco offered some antitrust commitments to the EC to gain regulatory approval for the deal, according to the commission’s website. A final decision by the commission is expected by 7 October, the EC said.
An acquisition of Aleris by Novelis would solidify Aditya Birla Group company Hindalco’s position as the world’s no.1 aluminium value-added products player, Kumar Mangalam Birla, chairman had stated in July last year.
Acquisition multiple of 7.2x at an expected EBITDA of $360 million
Consolidated net debt to EBITDA was expected to be below 3.5x at the time of closing of the deal.
Aleris has a global footprint with manufacturing facilities in Europe, the US and Asia, with best-in-class assets in Lewisport, US and Duffel, Belgium, ensuring Novelis’ leadership position in the fastest growing automotive segment.
Acquisition of Aleris would also mark Novelis’ entry into the high-end aerospace segment, with technological capabilities in manufacturing and research and development in Koblenz, Germany.