Lewisport Aleris Sales

After more than four years, three buyers, government interventions, and arbitrations, Aleris Lewisport appears to finally have a buyer that will be able to take over the plant in just a matter of weeks, after the company that bought the worldwide holdings of Aleris was required to sell the Lewisport plant as part of the deal.

On November 8 Novelis announced that it had agreed to sell the Lewisport Aleris location and another R&D office in Michigan to American Industrial Partners, a private equity firm out of New York, after the U.S. Department of Justice argued that Novelis would have an unfair competitive advantage in the auto body sheet market with the purchase of Aleris and its capacity in Lewisport. Arbitrators agreed and said that for Novelis to be allowed to purchase the rest of Aleris it would have to sell Lewisport and the R&D office.

This comes four years after a Chinese company, Zhongwang USA LLC, agreed to buy Aleris for $2.33 billion, a deal that fell through after U.S. regulators refused to approve the sale, and many months after Novelis’ parent company, Aditya Birla Group, agreed on a $2.58 billion sale.

Sunday’s announcement of the deal, which will net Novelis approximately $171 million, means an end to questions about Lewisport’s future, but it didn’t sit well with Novelis president and CEO Steve Fisher, who complained about the low price in an earnings call Tuesday.

“We are disappointed in the Department of Justice’s decision to require us to sell Lewisport to AIP,” Fisher said on the conference call.
Novelis got the order to sell Lewisport right as the COVID-19 pandemic started.
“(You) couldn’t have found a more difficult market condition to be in in selling an asset,” he said. “We ran a robust process through that timeframe and we’re disappointed the Department of Justice didn’t give us some more time to sell this because in a better market you would’ve gotten a more reflective price, similar to what we believe we got for Duffel when we sold that in November of last year pre-COVID.”

Novelis was forced by the European Union to sell the Aleris auto body sheet mill in Duffel, Belgium, also over concerns about unfair competition, and it sold that plant to ALVANCE for a total of €310 million.

The enterprise value (EV) of Lewisport and the R&D office were $330 million, Fisher said, which led to questions of why Lewisport plus another location would be valued lower than just the $450 million expansion Lewisport opened just four years ago.
“I will also say though to what we did find at Lewisport is not what we expected,” he said. “It’s not as fully operationalized or commercialized as we would’ve expected it to be at this point in time, which also had some impact in the overall valuation associated with that asset.”

When asked about the difference between the $330 million valuation and the $171 million net proceeds Fisher was evasive but said there were debts and other factors that determined the final number.
“All liabilities are being divested, so this is a net number of dollar proceeds to us at the end of the day,” he said. “We’re not retaining any liabilities associated with it, and all assets go.”

Analysts had estimated that the Duffel and Lewisport plants should sell for about $800 million, so their sub-$500 million total has led some market analysts to call the Aleris deal expensive for what Novelis wound up getting.
“You know no one could be more disappointed than we are in the ultimate outcome and what it really means for competition because we don’t think it’s necessarily the right answer for competition to begin with,” he said. “We’ve worked exhaustively over the last six months with the Department of Justice to come up with the best solution that we believed would satisfy many of the stakeholders including competition, customers and so forth.

“Unfortunately, under our agreement with the Department of Justice, when we agreed to arbitrate, the decision is at the sole discretion of the U.S. government and at this point we have to accept that and move on,” he said.  The only bright spot is that the deal should be finalized soon.

“As the Department of Justice was the one that instructed to sell to AIP, approvals will move very quickly and we expect to close this at the end of November,” Fisher said.
The news of the sale of Lewisport was met with both relief and optimism from Mike Keown, who was executive vice president of Aleris North America in the company’s former iteration and who presides over its remaining assets.

“We’ve had ownership distraction for quite some time and it’s nice for that deal and ownership uncertainty to start to come to an end,” he said.
Through the distractions he and the employees at Lewisport and Michigan kept working daily to do the best work they could and to turn out the best product possible.  “As far as our plant and our business, our people did a great job in staying focused on our customer base and continuing to deliver to our customers and doing it in the safest way possible,” he said.

“At this point the message to employees is really clear: our key focus has been… we take care of what’s in our control, we focus on operations each and every day, we focus on safety each and every day, we focus on our customers each and every day, and that has to be our primary and sole focus and ownership uncertainty is not in our control and now that’s starting to come to an end,” he said.

After the close of the sale the Aleris name, which only remains in Lewisport and the Michigan location, will be gone for good, although what Lewisport will be called has not yet been decided.  “It’s going to be Aleris for the near future but the company will be rebranded,” he said.

Although AIP is a private equity firm, its portfolio includes many businesses that are in the industrial realm, some of which might be complementary to Aleris and its aluminum product. The company’s website says AIP buys businesses to grow them, which is promising for Lewisport.

“AIP has talked about long-term investment in the facility, which is really encouraging,” Keown said. “They believe in the strategy that we presented to them as a leadership team and they have shown a lot of faith and belief in this workforce and that’s exciting for the future for this plant.”

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