Novelis Inc. has reaffirmed its full commitment to closing its proposed acquisition of Aleris Corporation, notwithstanding the US Department of Justice (DOJ) lawsuit to block the transaction. Novelis intends to vigorously defend against the DOJ’s challenge, which it believes is without merit. The acquisition will strengthen the aluminium industry’s ability to compete against steel in US automotive body sheet market, says Novelis.
The DOJ lawsuit is based on the contention that the only relevant competition among automotive body sheet providers is that among aluminium manufacturers such as Novelis and Aleris. It ignores competition from steel automotive body sheet, even though steel automotive body sheet is currently used for nearly 90 percent of the market.
“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,” said Steve Fisher, president and CEO of Novelis. “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 recognized appropriately. 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.”
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). 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.
No expected effect on closing
Due to the agreement reached with the DOJ on a timetable and process for resolving this dispute, Novelis is confident that the DOJ suit is not an impediment to closing the transaction by the 21 January 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.