Novelis Sells Aleris’ Belgium Plant But Yet To Receive Full Payment

Novelis Corp. has sold Aleris Corp.’s aluminium production plant in Duffel, Belgium, to Alvance, to fulfil a key condition set for the $2.8-billion takeover of the global supplier of the metal by Hindalco Industries Ltd.’s U.S. subsidiary.

Alvance, the international aluminium business of GFG Alliance’s Liberty Steel Group, had in November last year agreed to acquire the Duffel facility for €310 million. At closing on Sept. 30, 2020, Novelis received €210 million in cash. The parties have agreed to a post-closing arbitration process regarding the payment of the remaining €100 million, billionaire Kumar Mangalam Birla’s company said in an exchange filing.

Hindalco did not divulge any further details due to confidentiality clause involved in the arbitration proceedings.

Hindalco has faced several regulatory hurdles to complete its acquisition of Aleris. In September last year, the U.S. Justice Department filed a civil antitrust lawsuit seeking to block the purchase, citing the need to preserve competition in the North American market for rolled aluminum sheet used in automotive applications. The lawsuit alleged that the transaction, if allowed to proceed, would enable Novelis to lock up 60% of projected total U.S. automotive body sheet capacity, allowing the company to raise prices, reduce innovation and choice for consumers.

The Novelis-Aleris deal also faced antitrust objections in the European Commission last year. The commission and Chinese State Administration for Market Regulation, however, later held that the acquisition could proceed if Novelis divested Aleris’ plant in Duffel to a third party that met certain buyer suitability requirements. Finally, in April 2020, Hindalco secured a final approval after it agreed to sell its Duffel plant to Liberty House Group.

Alvance has received approval from both the regulators.

The divestment value at €310 million implied a trailing enterprise value per Ebitda of about 7.3 times. Considering remaining €100 million don’t come, the consideration of €210 million pegs the EV/Ebitda at nearly 4.9 times. The Duffel facility reported an operating profit of $50 million in the calendar year 2019.

Ritesh Shah, analyst at Investec, said the EV/Ebitda of 4.9 times is still reasonable despite being lower than over 7 times multiple paid to acquire Aleris (assuming $50 million of Ebitda contribution) in the current Covid-19 situation. This, he said, will only mean incremental cash flow for the company.

Macquarie, however, isn’t ruling out-of-court settlement to avoid delay in receiving the money or any legal cost. “If Novelis does not receive any further payment (implying final deal value of €210 millon), this will imply value loss of Rs 4 per share (versus our current estimate) or about 2% of current target price,” the research firm said in a note.

Besides Duffel plant divestment, Hindalco will have to divest its Lewisport plant in the U.S. as it lost the binding arbitrage with the antitrust division. But that may face delays on the back of the novel coronavirus outbreak. In April, Novelis had already sought an extension of 9-12 months to complete the deal.