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.