MUMBAI/TOKYO/NEW YORK -- American wariness of China gave Hindalco Industries an edge in its bid to acquire aluminum maker Aleris, part of a trend of Indian companies expanding in the U.S. as a hedge against protectionism.
An agreement on the $2.58 billion deal, which still needs to be approved by American regulators, was announced on July 26. The world's largest aluminum roller will make the purchase through its U.S. unit Novelis, and seeks to expand its customer base in automotive and construction materials, both growing fields, as well as to enter the aerospace sector.
The deal "will solidify our position as the world's No. 1 aluminum value-added products player," Hindalco Chairman Kumar Mangalam Birla said.
Hindalco, a core operation of the Aditya Birla Group, rapidly expanded its operations with a $6 billion acquisition of Novelis, then the world leader, in 2007. Novelis now accounts for 90% of the group's annual output capacity, with 61% of its sales in aluminum cans, 20% in automotive parts and 19% in specialized products.
The deal will raise automotive's share in Aditya Birla to 22%, while throwing construction-related and aerospace products into the mix. The group's total output capacity will increase about 30% to 4.7 million tons, far ahead of any other competitor.
But none of this would have happened had Washington not blocked Aleris's first buyer. The company initially agreed in August 2016 to be bought by the U.S. subsidiary of China Zhongwang Holdings. But that November, a bipartisan group of senators urged the treasury secretary to reject the deal, citing national security concerns.
The Committee on Foreign Investment in the U.S. eventually reviewed the deal and recommended that it be blocked, forcing Aleris and Zhongwang to abandon the deal in November 2017. Suspicions about big Chinese acquisitions, already rising in the U.S. before Donald Trump's election in 2016, have only increased under a president who considers China a "revisionist" power bent on undermining America.
Hindalco is only one of several Indian companies bolstering output in the U.S. since the Trump administration imposed tariffs on steel and aluminum in March. JSW Steel is investing a combined $1 billion to increase production capacity, including expanding an existing Texas plant and buying a factory in Ohio.
The U.S. remains on good terms with India. "We don’t see any reason why we won’t get a clearance in the U.S., given the presence Novelis has in the U.S. combined with our parent company in India," Novelis CEO Steve Fisher said.
Aluminum weighs just a third of steel per volume. Even though it is more expensive, demand is expected to surge, particularly in the automotive sector as a way to offset the weight of electric-vehicle batteries. But both steel and aluminum are considered key national security concerns by most countries, and are often subject to import restrictions. Big players are seeking acquisitions to ensure they have their own production hubs in key markets.
