Novelis' acquisition of Aleris hits European Commission roadblock

European Commission suspends deadline to clear the deal

Within days of the European Commission rejecting the merger of Tata Steel’s European unit with Thyssenkrupp’s steel business, the Commission on Tuesday “stopped the clock” on its in-depth investigation into Novelis’ proposed acquisition of Aleris. The procedure is activated when the parties concerned fail to provide in time the information sought by the Commission.

The Commission had earlier set August 8, 2019, as the deadline to complete its review of the deal.

US-based Novelis, a 100 per cent subsidiary of Kumar Mangalam Birla-led Hindalco Industries, had announced the acquisition of Aleris Corp for $2.6 billion in July last year. Tuesday’s development will, however, delay the transaction. 

“To comply with merger deadlines, parties must supply the necessary information for investigation in a timely fashion. Failure to do so will lead the Commission to stop the clock. Once the missing information is supplied by the parties, the clock is restarted, and the deadline for the Commission’s decision is then adjusted accordingly,” a spokesperson for the European Commission told Business Standard in an e-mail response.

On March 25, the governing body of the European Union had said it was opening an in-depth investigation to assess the proposed acquisition, expressing concern that the deal might reduce competition in the supply of various semi-finished aluminium products. “This (suspension of deadline) could mean more delay in getting the final nod for the acquisition,” said an analyst. A Hindalco spokesperson said: “The European Commission communicated to Novelis on May 13 its decision to ‘stop the clock’ effective as of May 7 because it needs more time to work through our case. These time extensions in Phase 2 are routine, and the parties are working with the commission to get the clock restarted as soon as possible.” The Hindalco stock closed at Rs 193 a share on Tuesday. It has lost 15 per cent of its market value since January this year. The acquisition would allow the Aditya Birla group company to foray into the high-end and growing aerospace sector and emerge as a $21 billion revenue company on a consolidated basis. As Aleris and Novelis have operations all over the world, it requires permission from the anti-trust authorities from all the key countries, including the US and China.

In March, Commissioner Margrethe Vestager, in charge of competition policy for the European Commission, had said European industries should be able to access aluminium products at fair prices so that they can compete in global markets. “Our in-depth investigation aims to ensure that the acquisition of Aleris by Novelis does not have a negative impact on effective competition in aluminium markets and does not lead to less choice and higher prices for European industrial customers,” she had said.

Novelis and Aleris are both global manufacturers of aluminium flat-rolled products with significant production facilities in the European Economic Area, in particular Belgium, Germany, Italy and the UK. With the proposed transaction, Novelis would reinforce its strong market position as a supplier of various flat-rolled products.

The Commission’s initial market investigation had raised several concerns resulting from the combination of both firms' offer of aluminium automotive body sheets, which are used in vehicles' body structure and closures. The Commission is concerned that, following the transaction, customers would face a reduced choice in suppliers as well as higher prices for aluminium automotive body sheets. The Commission plans to investigate whether the transaction could have an effect on the supply and prices of certain aluminium flat-rolled products used in other industries, such as building, construction and floor heating, where the operations of both firms overlap.