A company affiliated with one of China’s biggest aluminum makers agreed to acquire Cleveland-based Aleris Corp. from its private equity owners for $1.1 billion, which would mark the highest price ever paid by a Chinese firm for a U.S. metals producer. The deal by Zhongwang USA LLC to buy Aleris offers a “complementary business foothold,” said Liu Zhongtian, who controls the U.S. affiliate and is also the founder and chairman of China Zhongwang Holdings Ltd. Based in eastern China, China Zhongwang is one of the world’s biggest makers of aluminum extrusions, which are hollowed out or molded metal used to make goods like car parts, appliances and window frames. Aleris—which has 14 plants around the world, annual revenue of around $3 billion, and employs 5,000 people—makes rolled aluminum for a variety of industries, including aerospace, automotive and construction. Aleris has also supplied aluminum plate used by the U.S. military, including for armored vehicles.
It is also building a $400 million expansion in Lewisport, Ky., to ramp up production of aluminum sheet for car and truck makers, which have been increasing their use of the metal.
That means the deal will offer China Zhongwang better access to U.S. auto makers, whose increased consumption of aluminum to meet fuel efficiency standards is one of the brightest spots in the global aluminum industry.
China Zhongwang couldn’t be reached for comment.
Aleris Chief Executive Sean Stack said the transition to new ownership would be “seamless” and that the “new strategic shareholder” would give the company “greater financial flexibility.” The deal could provide the U.S. company with new sources of raw aluminum, and a foothold in China, another fast-growing market, say analysts.
The deal could attract attention from the Committee on Foreign Investment in the U.S., which can recommend blocking or modifying foreign investments on national security grounds. Last week CFIUS cleared the way for China National Chemical Corp.’s $43 billion planned takeover of seed giant Syngenta AG, months after dismissing smaller Chinese deals for electronics and lightbulb manufacturers.
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A spokeswoman for the Treasury Department, which oversees the committee, declined to comment. CFIUS is prohibited from disclosing information related to specific cases.
Since 2010, Aleris has been owned by a group of private-equity investors led by Oaktree Capital Management LP. Oaktree declined to comment. In addition to the cash price, Zhongwang USA will also assume $1.2 billion in Aleris debt as part of the deal, which is expected to close early next year.
Chinese industrial companies are increasingly likely to look for investment in the U.S. as the pace of economic growth slows in China. “They can use that capital in [new] investments in China, or invest abroad through acquisition,” said Andrew Lane, an analyst at Morningstar, Inc. “With slowing success at investment growth in China, it’s not surprising they would look elsewhere for opportunities.”
A lukewarm economy in China is having other consequences, too. The glut of steel, aluminum and others metals generated by Chinese oversupply has been a focus of U.S. trade officials, who have levied new tariffs this year on Chinese steel imports.
China Zhongwang is under investigation by the U.S. Commerce Department after domestic players complained the Chinese competitor was shipping metal through third countries to avoid import tariffs, a practice known as transshipping.
The tariffs in question were imposed in 2010 after a probe by Commerce officials found that China Zhongwang benefited from excessive Chinese government subsidies.
Jeff Henderson, a lobbyist for U.S. aluminum producers, said the Aleris acquisition “raises very serious concerns for the entire industry,” because of the allegations of transshipping, and because “Zhongwang is a state-supported enterprise and has received large benefits and financing from the Government of China.”
Corrections & Amplifications:
Aleris Corp. is being bought by Zhongwang USA LLC, which is an investment company owned by Zhongwang International Group Ltd., parent company of China Zhongwang. The headline on an earlier version of this article incorrectly stated that China Zhongwang was going to buy Aleris.
Source :
http://www.wsj.com/articles/china-zhongwang-to-buy-aluminum-company-aleris-1472475642
Credit Photo @ Bloomberg
