MUMBAI (Reuters Breakingviews) - An Indian tycoon is boldly going where Chinese rivals aren’t welcome. Kumar Mangalam Birla’s Hindalco Industries is buying aluminium producer Aleris for $2.6 billion after the Committee on Foreign Investment in the United States raised concerns over a previous bid by a Chinese buyer. Hindalco’s U.S. arm Novelis is paying more, but the numbers stack up. It’s a smart way to take advantage of geopolitics.

Aleris, backed by Oaktree Capital and Apollo Global, tried for two years to sell itself to Zhongwang. They finally gave up on a deal in November, creating an opening for Birla. He’s betting that Indian bidders carry less stigma than those from the People’s Republic thanks to New Delhi’s lower barriers to inward investment. There’s also less controversy about Indian manufacturers dumping products abroad.

It’s also not a bad second cut for the sellers. Birla is paying $300 million more than the Chinese bidder offered, equivalent to a gut-busting 13 times last year’s EBITDA. But that should fall to around seven times this year as some of the target’s big investments start to pay off, and adjusting for one-off plant outages, bringing the price closer to Hindalco’s own valuation.

There are synergies, too. Some $150 million of annual cost savings might be worth about $1 billion once taxed and capitalised. Just over half of that value should be realised within three years, and the rest no more than two years later. Add it up and this makes things quite comfortable for Hindalco; consolidated net debt will be less than three times EBITDA in two years.

It’s the second big overseas move by Birla after snapping up Novelis a decade ago. It’s also the second big outbound M&A deal from India within a week after Rajnikant Shroff’s UPL paid $4.2 billion for the agrochemicals business of Platform Specialty, a deal that will double the buyer in size.

Meanwhile, the White House is targeting inbound investment from the People’s Republic with new rules, not to mention tariffs. As Donald Trump and Xi Jinping continue to go at it, at least some of India’s opportunistic entrepreneurs may emerge as winners.

CONTEXT NEWS

- India’s Hindalco on July 26 agreed to buy U.S. aluminium producer Aleris in an all-cash deal for $2.6 billion, including debt.

- The Mumbai-listed group is acquiring the business through its privately held U.S. unit Novelis. Cleveland-based Aleris is owned by Oaktree Capital and Apollo Global.

- Aleris had earlier agreed to sell itself to Zhongwang USA in a $2.3 billion transaction. That deal was scrapped last year after the Treasury Department’s Committee on Foreign Investment in the United States raised national-security concerns about the Chinese-backed bidder.

- Indian media reported in January that Hindalco had submitted a bid for Aleris.

- Novelis was advised by Goldman Sachs. Aleris was advised by Moelis. The deal is expected to close within 15 months.

(Editing by Rob Cox and Martin Langfield)

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