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12 Senators Seek to Block Aleris Acquistion

Nov. 3, 2016
Zhongwang USA's plans to buy Aleris for $1.11 billion in cash and $1.22 billion in debt would give one of Asia’s biggest makers of extruded-aluminum products greater access to American and European technology.

The ranking Democrat on the Senate Committee on Finance is spearheading an effort to have the U.S. reject a Chinese aluminum entrepreneur’s purchase of Cleveland-based Aleris Corp. on national security grounds.

Oregon’s Ron Wyden and 11 other senators signed a letter addressed to the Treasury Department asking for the $2.3 billion acquisition announced in August to be reviewed, according to a copy obtained by Bloomberg. Should the Democrats win control of the Senate, Wyden would likely steer the agenda of the committee, which oversees trade.

Liu Zhongtian’s Zhongwang USA LLC plans to buy closely held Aleris for $1.11 billion in cash and $1.22 billion in debt, giving one of Asia’s biggest makers of extruded-aluminum products greater access to American and European technology, as well as buyers that include aerospace manufacturers like Boeing Co. and automakers such as Audi.

“Chinese entities, including state owned or state controlled enterprises, may have relationships with China’s military, compounding the risk that U.S. technologies will fall into the wrong hands,” the letter, addressed to Treasury Secretary Jack Lew, said.

“Aleris’ R&D and technology are critical to current and long-term U.S. economic and national security interests given Aleris’ use of advanced research and modeling techniques, development of high-strength alloys, and design of light armor material with increased ballistic performance,” they wrote. Other signatories include Chuck Schumer, a Democrat from New York; Al Franken, a Democrat from Minnesota; and Rob Portman, a Republican from Ohio.

Significant Footprint

When the deal was announced in August, Aleris Chief Executive Officer Sean Stack said in an interview that the company didn’t anticipate any regulatory hurdles. 

“We don’t check any of those boxes in terms of the criteria” for a formal inquiry from Treasury’s foreign investment committee, known as CFIUS, Stack said at the time.

China Zhongwang Holdings Ltd. could become the world’s second-largest aluminum rolling company should the Aleris acquisition be approved by regulators, Austin, Texas-based Harbor Intelligence wrote in an Aug. 30 research note. Aleris would give Zhongwang a significant footprint in the North American and European flat-rolled products markets, Jorge Vazquez, the managing director of Harbor, said in the note.

Zhongwang declined to comment on any CFIUS investigation, saying only that there will be no change to Aleris’ brand, management or business strategy.

Deal Scrutiny

Chinese takeovers have drawn attention from Capitol Hill recently, including China National Chemical Corp.’s $43 billion acquisition of Syngenta AG. In September, a group of lawmakers, citing investment in the U.S. by China, urged the Government Accountability Office to review whether CFIUS’s authority should be expanded and whether special consideration should be given to acquisitions from state-controlled Chinese buyers.

CFIUS, whose members include officials from the Defense, State and Justice Departments, reviews acquisitions of U.S. businesses by foreign buyers. The panel scrutinizes deals for any risks to U.S. national security and can impose conditions on transactions or recommend the president block them.

The aluminum industry has caught the attention of lawmakers in recent months amid rising concerns that overproduction in China will force U.S. smelters to shut more production, limiting domestic supply to manufacturers. Senator Schumer joined a group of lawmakers last month pushing for a World Trade Organization case against alleged Chinese subsidies of its aluminum industry, while the U.S. industry upped its anti-China drumbeat at a hearing by the U.S. International Trade Commission probe in September.

The U.S. is one of the the top recipients of Chinese capital, attracting more than $18 billion of foreign direct investment in the first half of 2016, according to Rhodium Group. That’s a threefold increase from the same period last year.

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