Aleris, Zhongwang Withdraw from CFIUS Vetting Process After Coming Under Political Pressure

Alu­minum rolled-prod­ucts man­u­fac­turer Aleris announced August 10 that it is with­draw­ing from an acqui­si­tion by Chi­nese steel man­u­fac­turer Zhong­wang amid doubts regard­ing the like­li­hood of the Com­mit­tee on For­eign Invest­ment in the United States approv­ing the deal.  Zhong­wang, the world’s sec­ond-largest pro­ducer of alu­minum extru­sions, com­menced nego­ti­a­tions towards a $2.33 bil­lion takeover in August 2016, but uncer­tainty arose after a group of Sen­a­tors called for then-Sec­re­tary of Com­merce Jacob Lew to exam­ine whether Zhong­wang had sought to avoid import tar­iffs.

United Steel­work­ers also expressed con­cern about the acqui­si­tion, argu­ing that it came at a time when the alu­minum sec­tor in the U.S. is at a seri­ous risk for harm by “unfair, ille­gal, preda­tory and pro­tec­tion­ist prac­tices.”  Inter­est­ingly, how­ever, as noted in this ear­lier Intel­Trak alert on this topic, the United Steel­work­ers also high­lighted sev­eral national secu­rity-related con­cerns in their ratio­nale for why this deal should be rejected, includ­ing the mil­i­tary appli­ca­tion of the high-value mate­ri­als pro­duced by Aleris and the Com­mu­nist Party mem­ber­ship and past gov­ern­ment work of Zhongwang’s Chair­man, Liu Zong­tian.

Although the CFIUS review is pri­mar­ily a secu­rity-minded process, in this case, con­cerns about local and national polit­i­cal oppo­si­tion related to the neg­a­tive pub­lic per­cep­tion of Chi­nese steel com­pa­nies dump­ing their pro­duct in West­ern mar­kets may have had as much to do with the annul­ment of the acqui­si­tion as con­cern over the CFIUS out­come.  Indeed, there are signs of a gen­eral down­turn of inter­na­tional trans­ac­tions involv­ing Chi­nese steel firms: data from Intel­Trak fore­casts a 55% fall in these trans­ac­tions between 2016 and 2017.