Acquisition Would Eliminate a New and Disruptive Rival Supplying Aluminum Sheet for the Next Generation of Automobiles; Department’s Concerns to be Resolved with Binding Arbitration Under the Administrative Dispute Resolution Act of 1996
(STL.News) – The Department of Justice filed a civil antitrust lawsuit Wednesday seeking to block Novelis Inc.’s proposed acquisition of Aleris Corporation in order to preserve competition in the North American market for rolled aluminum sheet for automotive applications, commonly referred to as aluminum auto body sheet.
The Antitrust Division’s lawsuit alleges that the transaction would combine two of only four North American producers of aluminum auto body sheet. Automakers rely on Novelis and Aleris to produce aluminum parts for automobiles to make cars lighter, more fuel-efficient, safer and more durable. The department filed its lawsuit in the U.S. District Court for the Northern District of Ohio.
The Antitrust Division has agreed with defendants to refer the matter to binding arbitration should certain conditions be triggered. The arbitration would resolve the issue of product market definition. The arbitration would take place pursuant to the Administrative Dispute Resolution Act of 1996 (5 U.S.C. § 571 et seq.) and the Antitrust Division’s implementing regulations (61 Fed. Reg. 36,896 (July 15, 1996)). This would mark the first time the Antitrust Division is using this arbitration authority to resolve a matter.
“Automakers increasingly need aluminum 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 aluminum 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 maximize its enforcement resources to protect American consumers.”
As alleged in the complaint, 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 favorable terms of service to the detriment of automakers and ultimately American consumers. Novelis’s acquisition of Aleris would eliminate a rival it described as “poised for transformational growth.” The complaint quotes internal presentations and emails describing an anticompetitive rationale for the transaction:
- Novelis worried that Aleris could be sold to a “[n]ew market entrant in the US with lower pricing discipline” than Novelis, and that an “[a]lternative buyer [was] likely to bid aggressively and negatively impact pricing” in the market.
- “[A]n acquisition by us as the market leader will help preserve the industry structure versus a new player . . . coming into our growth markets and disturbing the industry structure to create space for himself, while hurting us the most.”
Novelis is a Canadian corporation headquartered in Atlanta, Georgia. It offers flat-rolled aluminum products in three segments: automotive, beverage can and specialty products. In the fiscal year ending March 31, 2019, Novelis’s revenues were approximately $12.3 billion. Novelis is a wholly-owned subsidiary of Hindalco Industries Ltd., an Indian company headquartered in Mumbai, India.
Aleris is a Delaware corporation headquartered in Cleveland, Ohio. It offers flat-rolled aluminum products to the automotive, aerospace, and building and construction industries, among others. In 2018, Aleris’s revenues were approximately $3.4 billion.