Novelis 'disappointed' in sale value of former Aleris Kentucky aluminum mill

Pittsburgh — Novelis executives expressed disappointment Nov. 9 after the company signed an agreement to sell the former Aleris Lewisport, Kentucky, automotive aluminum body sheet plant to private equity firm American Industrial Partners for estimated net cash proceeds of about $171 million, saying that the real value of the facility is not fully represented in the agreement.

The sale of Lewisport was hindered by the time-constrained nature of the sale in a very difficult market, distorted by the coronavirus pandemic, Novelis CEO Steven Fisher said during a call with industry analysts.

"However, we have to move forward and focus on the path ahead," he said. "Novelis is already realizing benefits from the acquisition [of Aleris], and in some cases, more than we even expected, and is better positioned than ever for long-term sustainable growth."

Novelis completed its acquisition of rolled aluminum producer Aleris in April. In March, the company agreed to divest the Aleris-owned Lewisport plant, a major manufacturer of US automotive sheet, in order to gain US approval for the transaction as part of an agreement with the US Justice Department following an antitrust-related arbitration hearing.

"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," Fisher 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."

Fisher said the DOJ ultimately set the time parameters to complete the sale, which pushed Novelis to divest Lewisport despite the economic conditions.

"We ran a robust process through that time frame, and we're disappointed that the Department of Justice didn't give us some more time to sell this because, in a better market, you'd have gotten a more reflective price," Fisher said.

Furthermore, the Novelis CEO said operations at the Lewisport plant, upon acquisition, were "not what we expected."

"It's not as fully operationalized or commercialized as we would have expected it to be at this point in time, which also had some impact in the overall valuation associated with that asset," Fisher added.

Novelis now operates 13 of Aleris' former aluminum plants around the globe. The company was also required to sell Aleris' Duffel aluminum rolling mill in Belgium to UK-based Liberty House Group for EU regulatory approval.

Can sheet market to stay tight as demand increases

Fisher said the can sheet market should remain tight through 2025 even as companies incrementally add capacity to serve significant new aluminum can production investments in the US in response to spiking demand.

"You see all the announcements of our customers and their [can] lines that they're adding over the next several years that really puts investment dollars behind it," he said. "I think the market is tight, even when you think about Arconic coming back into the marketplace, so I think we expect the market to remain tight over the next several years."

Fisher said Novelis will still look at plans to debottleneck its facilities to gain more aluminum can sheet capacity in the near-term, but construction of new greenfield projects is unlikely.

"We're really excited about the growth that we're seeing in that market, driven by sustainability trends," he added. "We believe growth rate for can sheet through 2025 is about in the 3% to 5% range in the North America marketplace, which is substantial."

Novelis shipped 923,000 mt of flat-rolled aluminum products in its fiscal second quarter ending Sept. 30, a quarterly record for the company that represented an 11% year-on-year increase, according to an earnings statement Nov. 9.

The rise in aluminum shipments reflected new production from the recently acquired Aleris facilities, Novelis said.

The Atlanta-based aluminum producer reported a net loss of $37 million on $3 billion in sales in its fiscal Q2, compared with a $123 million profit on revenue of $2.85 billion in the same period last year.