02 September 2016

China Zhongwang to buy aluminium producer Aleris

Hong Kong Stock Exchange-listed China Zhongwang this week agreed to acquire aluminium products maker Aleris. The purchaser will pay USD 2,330 million as consideration for the takeover, which includes net debt. According to Zephyr, the M&A database published by Bureau van Dijk, the deal is the largest among those targeting aluminium production companies to have been announced since 2007.

Private equity firms Bain Capital, Oaktree Capital and Apollo Management are expected to exit from Aleris and the takeover is set to complete by March next year, pending regulatory approvals. The announcement came as Zhongwang, the world’s second largest producer of aluminium extrusions, is being probed for illegally evading US tariffs by modifying its products or shipping them through other locations.

According to the Wall Street Journal (WSJ), the deal may be subject to scrutiny from the Committee on Foreign Investment in the US (CFIUS). The inter-agency commission determines whether the foreign investment in question is detrimental to US national security and advises the President on whether it should be blocked or approved. Recent Chinese deals that fell apart due to CFIUS’ opposition include Tsinghua Unisplendour’s investment in computer storage device maker Western Digital, as well as Koninklijke Philips’ sale of lighting components manufacturer Lumileds. Surprisingly, however, the commission last month gave the green light for the much larger deal involving agrochemical firm Syngenta (valued at around USD 43,000), which will be acquired by China National Chemical. The approval implies that the CFIUS is less worried about the long term security of the US agricultural industry than the immediate concerns over foreign companies acquiring technology assets, as reported by the WSJ.

China’s investments face increasing backlash from other countries, too. Last month, in a move that irked China, the Australian government blocked State Grid and Cheung Kong’s investment in power transmission firm Ausgrid, citing national security concerns. The deal would have been valued at around AUD 10,000 million (USD 7,535 million). Similarly in July this year, the UK delayed its decision to approve the Hinkley Point C project, a Somerset-based nuclear plant construction partly backed by China. 

Ohio-based Aleris, which has a strong presence in North America and Europe, supplies aluminium rolled and extruded products to various industries, including the aerospace and automotive sectors. As reported by Bloomberg, the deal will extend Zhongwang’s reach to customers in such industries, as well as give it access to better manufacturing technology.  Furthermore, Aleris is expanding its Lewisport, Kentucky-based facility in order to boost production as demand for aluminium auto body sheet grows. Commenting on the deal, Zhongwang’s founder Liu Zhongtian said: “As the company enters the final phase of its Lewisport automotive project, I believe Aleris is well-positioned to capitalise on the positive demand trends we see globally, and I look forward to supporting the Aleris management team in implementing their growth strategies and pursuing continued success with expanded resources and financial and operational flexibility."

Zhongwang has appointed Deutsche Bank as financial advisor to the acquisition, while Aleris is being assisted by Credit Suisse and Moelis & Company.

© Zephyr