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Billionaire Birla’s Deal to Buy Aleris Faces U.S. Hurdle

Joe Deaux and Chiara Vasarri

(Bloomberg) -- Indian billionaire Kumar Mangalam Birla’s Hindalco Industries Ltd. faces another regulatory hurdle for its $2.6 billion proposed purchase of U.S. aluminum parts maker Aleris Corp., this time from Washington.

The Justice Department filed a civil antitrust lawsuit seeking to block the purchase by Hindalco’s U.S. unit Novelis Corp. The case cited the need to preserve competition in the North American market for rolled aluminum sheet for automotive applications. The deal also faced antitrust objections in the European Commission earlier this year.

The transaction if allowed to proceed, would enable Novelis to lock up 60% of projected total U.S. automotive body sheet capacity and the vast majority of uncommitted capacity, enabling the company to raise prices, reduce innovation and provide less favorable terms of service to the detriment of automakers and ultimately American consumers, the U.S. said.

The lawsuit ignores the competition from steel, which has almost 90% share of the automotive body sheet market, Novelis said in a statement Wednesday. The case isn’t expected to impede the closing of the deal by Jan. 21, “even if a remedy is required to address the DOJ’s competitive concerns,“ it said.

“Automakers increasingly need aluminum auto body sheet to satisfy American consumers’ demand for larger vehicles that are lighter and more fuel-efficient,” Makan Delrahim, the head of the Justice Department’s antitrust division, said in a statement. “The loss of a competing supplier of aluminum auto body sheet ultimately would harm American car buyers.”

EU Objections

Hindalco offered some antitrust commitments to the European Commission to gain regulatory approval for the deal, according to information on commission’s website posted last month. The deadline for taking a final decision on the deal is Oct. 7, the commission said.

“Our merger with Aleris threatens no one, and to the contrary will strengthen our ability to compete against steel, meet growing customer demand for aluminum, achieve our recycling goals, and bolster our sustainability platform worldwide,” Steve Fisher, Novelis CEO said in an emailed statement, referring to the DOJ case.

Shares of Hindalco in Mumbai rose as much as 3.9% Thursday, before paring gains to close 1.6% higher at 184.60 rupees ($2.57).

Premium Valuations

The retention of Aleris’s automotive body sheet business is essential for the deal to add value for Hindalco, Emkay Global Financial Services’ analysts Vishak Chandak and Kamal Kanta Sahoo said in a report. If the acquisition is blocked, it would be negative for Hindalco as aerospace and auto body sheets are the two biggest attractions of Aleris, they said.

Novelis is the second Aleris suitor that faced regulatory scrutiny in the U.S. for the purchase of the Cleveland-based aluminum maker. In 2017, Aleris agreed to terminate its merger with Zhongwang USA LLC, owned by billionaire Liu Zhongtian, after failing to get approval to proceed from American regulators.

“The transaction remains subject to other customary closing conditions, including receipt of regulatory approvals in Europe and China,” Sean Stack, Aleris chairman and CEO said in a separate emailed statement. “We are pleased that the parties and DOJ have agreed on a process and timetable for resolving the dispute that will permit the transaction to close by January 21, 2020, the contractual end date under the merger agreement. We continue to believe that this acquisition will be extremely positive for Aleris customers, employees and shareholders.”

(Updates with analyst comment in the ninth paragraph.)

--With assistance from David McLaughlin and Swansy Afonso.

To contact the reporters on this story: Joe Deaux in New York at jdeaux@bloomberg.net;Chiara Vasarri in New York at cvasarri@bloomberg.net

To contact the editors responsible for this story: Luzi Ann Javier at ljavier@bloomberg.net, Alpana Sarma, Atul Prakash

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