U.S. Justice Department Concludes Arbitration Of Novelis-Aleris Deal
The arbitration decision in U.S. Justice Department’s antitrust lawsuit against Aleris- Novelis deal will be issued by March 13.
Washington has concluded an arbitration of a merger dispute that could pave the way for billionaire Kumar Mangalam Birla’s Hindalco Industries Ltd.’s proposed $2.6-billion takeover of Aleris Corp.
If the U.S. Department of Justice wins, then Novelis Corp.—Hindalco’s U.S. unit—will have to divest certain agreed-upon assets to preserve competition in the relevant market, according to a statement on its website. If the defendants prevail, the U.S. will seek to voluntarily dismiss the complaint. Negotiations between Novelis and the U.S. Justice Department now hinges on Aleris’ rolling mill at Lewisport, Kentucky, and its 200 kilotonne automotive finishing line.
The arbitration decision, the statement said, will be issued by March 13.
The Justice Department in September filed a civil antitrust lawsuit seeking to block the purchase by Novelis, citing the need to preserve competition in the North American market for rolled aluminum sheet used in automotive applications. The antitrust division’s lawsuit alleged that the transaction, if allowed to proceed, would enable Novelis to lock up 60 percent of projected total U.S. automotive body sheet capacity, allowing the company to raise prices, reduce innovation and choice for consumers.
The Aleris-Novelis deal also faced antitrust objections in the European Commission earlier last year. But in October, it provided a conditional approval after Novelis agreed to sell the entire automotive body sheet business of Aleris in Europe to Liberty House Group. The selloff included Aleris’ production plant in Duffel, Belgium, and R&D assets. But the deal is still being reviewed.
JPMorgan, however, said the Aleris-Novelis deal would be accretive, even without its rolling mill at Lewisport, Kentucky as its overall cost of acquisition would also come down.
The research firm estimates Aleris’ Duffel plant’s earnings before interest, tax, depreciation and amortisation at $50 million, while Lewisport plant’s operating profit at $55 million, given its utilisation at 85 percent for the 100-kilotonne line. Aleris’ deal will bring aerospace exposure and the complementary asset footprint in China and the synergy benefits, it said.
According to BloombergQuint’s calculation, Aleris’ estimated CY19 Ebitda came at $408 million. And with an enterprise value of $2.6 billion, its EV/Ebitda stood at 6.3 times. But factoring in the divestment—that is deducting the estimated Ebitda for Duffle and Lewisport plants—Aleris’ operating profit would fall to $303 million. Also, the enterprise value would fall to $1,917 million, fetching an EV/Ebitda of 6.4 times. That’s still above the industry’s benchmark of 6 times.
The key to the deal, however, is the amount of consideration the two assets would get and the Ebitda they would generate.