Mergers & Acquisitions

Zhongwang says it’ll bring jobs stability to Aleris, hits back at US opposition to US$2.3 bln takeover

The petition by US senators to reject Zhongwang’s takeover of Aleris is not based on facts, Chinese company’s spokeswoman says

PUBLISHED : Thursday, 03 November, 2016, 2:06pm
UPDATED : Thursday, 03 November, 2016, 10:57pm

China Zhongwang Holdings, Asia’s largest producer of extruded aluminium bars and rods, said its proposed US$2.3 billion takeover of Aleris from private-equity funds will bring jobs stability and resources to its investment, and help it expand into the automotive and aerospace industries.

This week, a group of US senators led by Ron Wyden (D-Oregon), ranking member of the US Senate committee of finance overseeing trade, urged US Treasury Secretary Jack Lew to review and reject Zhongwang’s takeover plan on national security grounds, Bloomberg reported, citing a letter signed by Wyden and his 11 colleagues.

“Chinese entities, including state-owned or state-controlled enterprises, may have relationships with China’s military, compounding the risk that U.S. technologies will fall into the wrong hands,” said the letter.

Aleris’ high-strength alloys manufacturing technology enabled by advanced modelling techniques, and its design of light armour material with enhanced ballistic performance are critical to long term US economic and national security interests, the letter said.

The opposition is not based on facts, said Amanda Xu, spokeswoman of Zhongwang USA.

“Contrary to what was stated in the senators’ letter, Zhongwang USA and the Zhongwang group of companies are neither state-owned nor state-controlled,” Xu told the South China Morning Post in a phone interview. “Zhongwang is a fully market driven company without any affiliation to any government.”

Aleris, which supplies rolled aluminium sheets to Boeing, Airbus and German carmaker Audi, said it doesn’t make products that have any defence applications.

“Our facilities in the US produce aluminium [products] for car and truck exteriors, gutters and roofing material,” the Ohio-based company said in a statement. “Less than 1 per cent of our sales go into defence applications, and none of those goods are produced in the US.

“The technology to produce aluminium plate, which is used in some military applications, is standard production technology widely used in the aluminium industry,” Aleris said.

Zhongwang, based in Liaoning province, has not supplied any flat rolled aluminium sheets to China’s military, since its US$4.7 billion Tianjin plant will only be able to enter commercial production next year, spokeswoman Xu said. The company’s chairman Liu Zhongtian also owns Zhongwang USA.

The company is eyeing Aleris’ technology and production capacity to produce aluminium sheets that can used in the automotive industry, as well as supply the aircraft manufacturing industry.

China is the world’s largest vehicle market, and is projected to be the fastest growing major market for new aircraft. In Tianjin, Toyota has a plant that makes Vios compact cars, while Airbus assembles its A320 single-aisle aircraft in the city.

Andrew Driscoll, head of resources research at CLSA, said he is not aware of cases where aluminium products caused security concern arising from sales to the military, since it is used in a wide range of industries.

Zhongwang isn’t the first Chinese acquirer to face opposition by US politicians. This comes as China overtook the US in outbound mergers and acquisitions during the first nine months of 2016, according to data by Dealogic.

China overtakes US as world’s largest assets acquirer

“Much of this has to do with prejudice, unjustified worries, protectionism and politicking,” said Kevin Guo, a Shenzhen-based analyst at Guotai Junan Securities, who has a “Buy” recommendation on the company’s Hong Kong-traded stock.

Aleris, which was founded in 2004 through a merger of Commonwealth Industries Inc and IMCO Recycling Inc., operates 40 production facilities around the world, making extruded aluminium products, recycling aluminium and high specification aluminium products.

It filed for Chapter 11 bankruptcy in 2009 and was taken over in 2010 by a group of private equity funds including Apollo Management, Oaktree Capital Management and Sankaty Advisors.

“The change in shareholding from a private equity based ownership to a long-term industry investor will bring in additional resources and capital to Aleris and help create new jobs,” Zhongwang’s spokeswoman Xu said.

After the proposed takeover, Aleris will continue to operate as an independent company under the same management in the forseeable future, and any plan to transfer technology to China Zhongwang will only be a consideration for the long term, she said.

Zhongwang USA has submitted a filing to the Committee on Foreign Investment in the United States (CFIUS) on an “entirely voluntarily” basis, to address any regulatory concerns about the takeover, she added.