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Birlas snap up US firm Aleris for $2.6 billion

Birlas snap up US firm Aleris for $2.6 billion

Mumbai: Birla group flagship Hindalco on Thursday announced acquisition of American aluminium maker Aleris in a USD 2.58-billion leveraged deal through its overseas subsidiary Novelis that will help it diversify product offerings in the value-added products segment.

The acquisition, which comes a decade after the diversified Aditya Birla Group took over Novelis in a USD 6- billion transaction, will make Hindalco the second largest aluminium maker globally with a revenue of USD 21 billion and an annual capacity of 4.7 million tonne, chairman Kumarmangalam Birla told reporters. Novelis has signed a definitive agreement to acquire the privately-owned Aleris Corporation specialised in automobile and aerospace products, Birla said.

The Cleveland, Ohio-headquartered Aleris is owned by private equity funds Apollo Management and Oaktree Capital Management. Last year, the Chinese company Zhongwang had called off merger talks with it after it failed to get US government approvals. Terming the acquisition as a "value accretive", Birla said he expects the transaction to be completed over the next 9-15 months.

The acquisition will increase Hindalco's play in the automotive segment--Birla expects the contribution of this segment to move up by 2 percentage points to 22 per cent of the group's revenue pie--and also diversify the product mix by adding the crucial aerospace segment.

He said both the aerospace and automotive segments are expected to play a pivotal role going ahead. Additionally, it is also expected to help with know-how at all of Novelis and Hindalco's plants, he added.

Birla said the group plans to fund the deal with debt.

The deal involves a USD 775-million cash payment and taking over the debt of Aleris which includes over USD 200 million in pension liabilities. But this is spread over multiple years and are taken into consideration while arriving at the valuation, he added.

Aleris has 13 plants in North America, China and across the European Union, and R&D centres in Koblenz in Germany. The company employs over 5,400. It had revenue of USD 3 billion in 2017 and is expected to clock an operational profit of USD 360 million this year.

Birla justified that the valuation, saying it is only 7.2 times the expected operational profit.

With both Novelis and Aleris operating in the same segment, the acquisition will also lead to a host of synergies to the tune of USD 150 million per annum on a recurring basis, Birla said, adding the acquisition is also margin accretive. With the leveraged deal, Novelis' USD 3.5 billion debt will increase by USD 2.6 billion, chief financial officer Dev Ahuja said, adding the debt to operational profit ratio will initially go up to 3.5x and come down to 3x in two years. But Hindalco's balancesheet will not be altered in any way with the acquisition, he added.

Aleris has completed a USD 900-million investment recently, Birla said, adding the deal will also help the group increase its China play, where the auto industry is growing at a faster clip.

Hindalco managing director Satish Pai said the company will need to make only an additional investment of around USD 350 million over the next three years to integrate the group's existing manufacturing facilities with those of Aleris.

Birla said domestically, the aluminium industry is at an inflection point with newer segments like defence, building material, construction, transportation and solar being the future engines of growth, beyond the present electrical industry and auto sector.

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