“As long as we can stay in the 4x (earnings before interest, taxes, depreciation and amortization) and bring it down to 3x, then we’ll continue to further explore opportunities that are in the marketplace - more on the organic side than inorganic,” said Steve Fisher, Novelis president and chief executive officer, during an earnings call Tuesday August 7.
According to Fisher, Novelis has yet to receive much feedback from federal regulators about its $2.6 billion purchase of Aleris - which was announced by both companies
July 26. In Aleris' earnings release Monday August 6, the company said it expected the transaction to close in 9 to 15 months.
As part of the deal, Novelis will acquire Aleris' 13 manufacturing facilities in North America, Asia and Europe - including a new 200,000-tonne-per-year automotive finishing line in Lewisport, Kentucky.
During the call, Fisher said that the acquisition of Aleris would make Novelis - which reported net income of $137 million for the three months ending June 30 - stronger in “specialty markets”. According to Fisher, the company is making strategic investment decisions in order to diversify its portfolio.
Sources who spoke to American Metal Market prior to the announcement of the acquisition speculated that Aleris’ highly leveraged Ebitda ratio would be a concern for the company going forward. However, Novelis said it believes that it will reduce the leverage of the Aleris acquisition to 4x by the time of the acquisition’s close from more than 8x at the time the deal was announced.
Aleris reported a $47 million loss for the second quarter of 2018 - which the company said would have been a profit of $2 million had the company not refinanced its debt
during the quarter.
Uncertainty still pervades the acquisition, which is pending federal regulatory approval. The current political climate is seen by some market participants as a possible reason the acquisition may run into closing problems, given that Novelis’ parent company, Hindalco Industries, is based in Mumbai, India.
Aleris has already had one acquisition attempt thwarted by US regulator concerns. The planned $2.3 billion purchase of the company by an arm of China Zhongwang Holdings was cancelled in November 2017
after more than a year of back-and-forth with regulators such as the Committee on Foreign Investment in the United States (CFIUS).