US govt sues to stop Aditya Birla subsidiary's takeover of aluminium maker

The US Department of Justice on Wednesday said it has filed a lawsuit against Novelis, a major aluminium company fully owned by India's Aditya Birla Group, seeking to stop it from acquiring rival player Aleris over concern that the acquisition would create a monopoly in the aluminium industry.

A defiant Novelis asserted that it will challenge the lawsuit and is going ahead with its proposed acquisition of Aleris Corporation.

Atlanta-headquarters Novelis is a wholly owned subsidiary of Hindalco Industries Ltd of the Aditya Birla Group. Aleris is based in Cleveland, Ohio.

The Department of Justice said in a statement that it has filed a civil antitrust lawsuit seeking to block the proposed transaction in order to preserve competition in the North American market for rolled aluminium sheets for automotive applications, commonly referred to as aluminium auto body sheet.

However, Novelis president and CEO Steve Fisher said, "Our merger with Aleris threatens no one, and to the contrary will strengthen our ability to compete against steel, meet growing customer demand for aluminium, achieve our recycling goals and bolster our sustainability platform worldwide."

The DOJ lawsuit is based on the contention that the only relevant competition among automotive body sheet providers is among aluminium manufacturers such as Novelis and Aleris, the Aditya Birla group company said.

It ignores competition from steel automotive body sheet makers, even though steel automotive body sheet is currently used in nearly 90 percent of the market, it asserted.

"The day-to-day reality of the automotive body sheet market is aluminium automotive body sheet striving to take share from steel, and the steel automotive body sheet companies fighting back," Fisher said.

"We are disappointed that the DOJ has missed this, but also confident that in the next phase of this process, the full scope of the competition we face will be recognised appropriately," Fisher said.

In its lawsuit filed in the US District Court for the Northern District of Ohio, the Antitrust Division of Department of Justice alleged the transaction would combine two of only four North American producers of aluminium auto body sheet.

Automakers rely on Novelis and Aleris to produce aluminium parts for automobiles to make cars lighter, more fuel-efficient, safer and more durable, the lawsuit said. The Antitrust Division has agreed that Novelis can refer the matter to binding arbitration should certain conditions be triggered.

"Automakers increasingly need aluminium auto body sheet to satisfy American consumers' demand for larger vehicles that are lighter and more fuel-efficient. The loss of a competing supplier of aluminium auto body sheet ultimately would harm American car buyers," said Assistant Attorney General Makan Delrahim of the Justice Department's Antitrust Division.

"This arbitration would allow the Antitrust Division to resolve the dispositive issue of market definition in this case efficiently and effectively, saving taxpayer resources. Alternative dispute resolution is an important tool that the Antitrust Division can and will use, in appropriate circumstances, to maximise its enforcement resources to protect American consumers," he said.

In its lawsuit, DOJ says that Aleris is an aggressive competitor whose expansion into the North American market had an immediate impact on pricing in North America.

“If this deal were allowed to proceed, Novelis would lock up 60 percent of projected total domestic capacity and the vast majority of uncommitted capacity, enabling the company to raise prices, reduce innovation and provide less favourable terms of service to the detriment of automakers and ultimately American consumers,” it said.

Novelis's acquisition of Aleris would eliminate a rival it described as "poised for transformational growth", it said.

In a statement, Novelis said that to prevail in its lawsuit, the DOJ will need to prove that there is a distinct "relevant market" for aluminium automotive body sheet, which means that steel automotive body sheet does not significantly constrain the price and quality of aluminium automotive body sheet.

The DOJ does not deny that steel automotive body sheet usually competes with aluminium automotive body sheet, but instead contends that the constraint from steel is absent from some procurements (where an automotive manufacturer has supposedly already decided between steel and aluminium), it said.

Novelis believes that by focusing on just a small slice of steel-aluminium competition and ignoring the broader competitive process, the DOJ's theory contravenes well-established principles of market definition.

The DOJ also disregards the extraordinary bargaining power of the automotive manufacturers and their ability to generate bid processes that will ensure competitive pricing for automotive body sheet, Novelis alleged.

According to Novelis, due to the agreement reached with the DOJ on a timetable and process for resolving this dispute, it is confident that the DOJ suit is not an impediment to closing the transaction by the January 21, 2020 outside date under the merger agreement, even if a remedy is required to address the DOJ's competitive concerns.

“The company is confident that the transaction will ultimately receive all necessary regulatory approvals in the US and in other relevant jurisdictions,” said the Novelis statement.