The European Commission has approved, under the EU Merger Regulation, the acquisition of Aleris by Novelis. The decision is conditional on the divestiture of Aleris' aluminium automotive body sheets business in Europe.
Today's decision follows an in-depth investigation of the deal, which combines Novelis, the largest producer of aluminium automotive body sheets worldwide, with Aleris, an established supplier of the same product. Both companies are global manufacturers of aluminium flat rolled products and have a significant presence in the European Economic Area (EEA).
The Commission's investigation
During its in-depth investigation, the Commission gathered extensive information and received feedback from several customers active in various sectors, such as construction, electronics, packaging and in the manufacturing of cars.
The Commission found that aluminium flat rolled products, such as aluminium automotive body sheets, used in the automotive industry, are in a separate market than other aluminium products. This means that the merged entity would have had very high market shares and controlled a very significant proportion of the manufacturing capacity for aluminium automotive body sheets in the EEA.
In addition, the limited number of smaller remaining competitors active in the market would not have been able to defeat a price increase, also due to their limited spare capacity. The transaction was also found to reduce the incentives of the merged entity to invest in additional manufacturing capacity.
The Commission therefore had concerns that the transaction, as notified, would have resulted in higher prices for European customers for aluminium automotive body sheets.
Automotive customers have only limited possibilities to switch from aluminium to steel, and the range of suppliers, prices and supply chains are different across these products. They rely on competitive prices for this product also as a way reducing the weight of their vehicles.
Novelis and Aleris also produce a number of aluminium products other than aluminium automotive body sheets used in industries, such as building, construction and floor heating. However, the Commission concluded that there were no concerns relating to those products.
The proposed remedies
To address the Commission's competition concerns, the parties offered to divest Aleris' entire aluminium automotive body sheet business in Europe, including its production plant in Duffel, Belgium. In order to preserve its viability, the Duffel plant's divestiture will also include other products currently manufactured at that plant.
The proposed divestiture removes the entire overlap created by the transaction in aluminium automotive body sheets in Europe. Furthermore, the Duffel plant constitutes an integrated production site that already today produces almost the entirety of the upstream inputs required for its downstream operations, including hot rolled coils and most slabs. The divestiture will include R&D assets as well as funding for an investment to the benefit of the buyer to further improve its capabilities.
The Commission found that the divested assets constitute a viable integrated business that would enable a suitable buyer to effectively compete with the merged entity. Feedback received from market participants on the proposed commitments confirmed the Commission's view.
The Commission therefore concluded that the transaction, as modified by the commitments, would no longer raise competition concerns. The decision is conditional on full compliance with the commitments.
Companies and products
Novelis, headquartered in the US, is a global manufacturer of semi-finished aluminium products and recycler of aluminium. It operates several manufacturing facilities across North America, South America, Europe and Asia. Novelis is a subsidiary of Hindalco Industries Limited, an India-based supplier of aluminium and copper.
Aleris, headquartered in the US, is a global manufacturer of semi-finished aluminium products. It operates several production facilities in North America, Europe and Asia.
Merger control rules and procedure
The transaction was notified to the Commission on 18 February 2019, and the Commission opened an in-depth investigation on 25 March 2019.
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).
There are currently two on-going phase II merger investigations: the proposed acquisition of Bonnier Broadcasting by Telia Company and the proposed acquisition of Grupa Lotos by PKN Orlen.