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The acquisition, which comes a decade after the diversified Aditya Birla Group took over Novelis in a $6- billion transaction, will make Hindalco the second largest aluminium maker globally with a revenue of $21 billion and an annual capacity of 4.7 million tonne, chairman Kumarmangalam Birla told reporters.
Novelis has signed a definitive agreement to acquire the privately-owned Aleris Corporation specialised in automobile and aerospace products, Birla said.
The Cleveland, Ohio-headquartered Aleris is owned by private equity funds Apollo Management and Oaktree Capital Management. Last year, the Chinese company Zhongwang had called off merger talks with it after it failed to get US government approvals.
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The acquisition will increase Hindalco’s play in the automotive segment–Birla expects the contribution of this segment to move up by 2 percentage points to 22$ 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 $775-million cash payment and taking over the debt of Aleris which includes over $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 $3 billion in 2017 and is expected to clock an operational profit of $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 $150 million per annum on a recurring basis, Birla said, adding the acquisition is also margin accretive.
Aleris has completed a $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.
Birla said the deal will help Hindalco’s domestic plans as well, courtesy the know-how that comes on board. Hindalco is targeting to invest $1 billion in value added products over the next five years for doubling its capacity.