CLEVELAND — The federal government has prevailed in a complex arbitration case related to Atlanta-based Novelis Inc.’s proposed $2.6 billion acquisition of Beachwood-based Aleris Corp. — a decision that clears the way for the deal to take place, but will require Novelis to sell Aleris’s entire aluminum auto body sheet operations in North America.

Novelis is a major supplier to the auto industry and Ford Motor Co. is its second-largest overall customer, generating about 10 percent of its annual revenue, according to its 2019 annual report. The supplier generated $12.3 billion in revenue during its 2019 fiscal year — nearly $3 billion from automotive customers. 

The U.S. Department of Justice said in a statement issued Monday, March 9, that the required divestiture “will fully preserve competition in this important industry.”

“Today’s decision is a victory for automakers and American consumers and taxpayers and will preserve competition in the market for aluminum auto body sheet,” said Assistant Attorney General Makan Delrahim, of the Justice Department’s Antitrust Division, in a statement.

Novelis said in a news release that as a result of its agreement with DOJ, the company must sell an Aleris plant in Lewisport, Ky.

Steve Fisher, CEO of Novelis, reiterated his disagreement with the government’s position.

He said in a statement that the arbitration decision “ignores the reality of the automotive body sheet market and the competition we have faced against steel for years. Aluminum remains the material of choice for our customers, and we are going to continue to provide them with the innovative, lightweight and sustainable solutions they demand.” However, he added, “We are moving forward with the acquisition of Aleris to realize the many benefits this transaction will bring to our employees, customers and the aluminum industry as a whole.”

To close its acquisition of Aleris, Novelis said, it must receive European Commission approval of the buyer of Aleris’ plant in Duffel, Belgium. Once that approval is received, Novelis said, it “will close the transaction as quickly as possible.”

The Novelis/Aleris combination was announced in July 2018.

Case history

The arbitration dates back to Sept. 4, 2019, when DOJ’s Antitrust Division filed a civil antitrust lawsuit in the U.S. District Court for the Northern District of Ohio seeking to block Novelis’ proposed acquisition of Aleris. DOJ and the companies agreed to enter binding arbitration if they couldn’t resolve the government’s concerns about competition in the aluminum auto body sheet market.

The arbitrator on Monday ruled in favor of the government, “holding that aluminum auto body sheet constitutes a relevant product market, as the United States had alleged,” DOJ said in its statement.

Novelis, which produces flat-rolled aluminum products in three segments — automotive, beverage can and specialty products — posted revenues of about $12.3 billion for the fiscal year ending March 31, 2019. The company is a subsidiary of Hindalco Industries Ltd., which is headquartered in Mumbai, India.

Aleris produces flat-rolled aluminum products to the automotive, aerospace, and building and construction industries. Its 2018 revenues were about $3.4 billion.

Automotive News contributed to this story. Crain’s Cleveland Business is an affiliate of Automotive News.