MUMBAI: In a significant move, Aditya Birla Group’s Novelis Inc on Thursday said it will acquire Ohio-based aluminium sheet-maker Aleris Corp at an enterprise valuation of $2.58 billion.
Novelis is a wholly-owned subsidiary of Birla’s aluminium and copper producing business Hindalco Industries Ltd.Following the Aleris acquisition, Hindalco-Novelis will emerge as the world’s largest aluminium downstream player with a capacity of 4.7 million tonnes.
Both firms signed a definitive agreement including a cash payment of $775 million and absorption of Aleris’s $1.8 billion debt, making it a debt-funded buyout.
Novelis, which makes car parts, cans and aluminium-based packaging, was itself acquired by Birla in 2007 for $6 billion. The deal is expected to close in 9-15 months, subject to regulatory approvals in the US, European Union and Asia.
“The acquisition is value accretive from the first year itself, both in terms of cash flows and net profit, which is rare for acquisition as big as this,” Kumar Mangalam Birla, Chairman, Aditya Birla Group.
The company expects $150 million synergies on a recurring basis from the third year after the merger. There’s also an earn-out clause, which rewards both firms for performance beyond the base business plan during 2018-2020 for North America. Any excess revenue during this period will be split evenly between Novelis and Aleris, with the cap set at $50 million.
“The acquisition multiple we are talking about is only 7.2, given that EBITDA will be $360 million the year which we take over the company ... I believe, investors will view this as positive,” Birla said.
In FY17, Aleris had revenues of $3 billion and shipments of 800 kilo-tonnes. The combined entity will have pro forma revenue of about $15 billion and will operate 37 facilities with a workforce of 16,500, a Novelis statment said.
The acquisition gives Hindalco, besides others, access to aerospace segment, where Aleris has long-term contracts with Boeing, Airbus and Bombardier.
Aleris has manufacturing sites in North America, Europe and China that produce rolled aluminium sheets, plates and fabricated products for the automotive, building and construction, transportation, and consumer durables industries.