Seeking Alpha
IPOdesktop, IPOpremium (431 clicks)
Value, IPOs, long only
Profile| Send Message| ()  

Based in Beachwood, Ohio, Aleris (proposed ARS) scheduled a $500 million IPO with a market capitalization of $1.7 billion at a price range mid-point of $16 for Thursday, April 12, 2012. S-1

Eight IPOs are scheduled for this week. The full IPO calendar is here.

Manager, Joint Managers: J.P. Morgan; Barclays: Deutsche; BofA; Goldman, Sachs. Co Managers: KeyBanc Capital; Credit Suisse; Moelis; Morgan Stanley; UBS; Davenport.

SUMMARY
ARS is a global leader in the manufacture and sale of aluminum rolled and extruded products, aluminum recycling and specification alloy manufacturing.

ARS emerged from bankruptcy in May, 2010. Selling shareholders comprise 70% of the IPO.

ARS paid $500.0 million in cash dividends to its stockholders during the year ended December 31, 2011. No further dividends are expected.

ARS is priced at a slight price-to-sales discount relative to Kaiser Aluminum (KALU) and ALcoa Aluminum (AA), and is priced at a significant P/E ratio discount on a trailing 12 months basis. Both KALU and AA are listed as competitors in the ARS's S-1 filing.

On a year-to-date basis KALU and AA are both up slightly. See the chart.

It's impressive that ARS emerged from bankruptcy in May 2010 and 19 months later paid a $500 million cash dividend the shareholders.

CONCLUSION
The aluminum business ARS is very cyclical, otherwise they wouldn't have gone bankrupt, so there is risk. AA is expected to report a loss for the March, 2012 quarter.

And aluminum prices are headed lower, "Alcoa cuts alumina output as oversupply dents prices"…read more

Also, shareholders are selling 70% of the IPO. So for time being we'd watch from the sidelines because there may be significant upside potential if the industry turns arounds.

BUSINESS
ARS believes it is a global leader in the manufacture and sale of aluminum rolled and extruded products, aluminum recycling and specification alloy manufacturing, with locations in North America, Europe and China.

ARS operates 41 production facilities worldwide, with 14 production facilities that provide rolled and extruded aluminum products and 27 recycling and specification alloy manufacturing plants.

ARS is currently constructing its 42nd production facility, a state-of-the-art aluminum rolling mill in China that will produce semi-finished rolled aluminum products, through a China joint venture.

In 20011 50% of revenues were derived from North America. 50% were derived from the rest of the world.

ARS operates two global business units: Global Rolled and Extruded Products and Global Recycling.

BANKRUPTCY
On February 12, 2009, Aleris International, along with certain of its U.S. subsidiaries, filed voluntary petitions for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Delaware.

The bankruptcy filings were the result of a liquidity crisis brought on by the global recession and financial crisis. Aleris International's ability to respond to the liquidity crisis was constrained by its highly leveraged capital structure, which included at filing $2.7 billion of debt, resulting from the 2006 leveraged buyout of Aleris International.

On February 5, 2010, Aleris International and certain of its U.S. subsidiaries initially filed the Plan of Reorganization and a related disclosure statement with the Bankruptcy Court.

Aleris Deutschland Holding GmbH, a wholly owned German subsidiary, also filed a voluntary petition for bankruptcy protection in the Bankruptcy Court. On March 12, 2010, the Bankruptcy Court approved the disclosure statement and authorized Aleris International to begin soliciting votes from its creditors to accept or reject the Plan of Reorganization.

On May 13, 2010, the Bankruptcy Court entered an order confirming the Plan of Reorganization, as amended.

DIVIDEND POLICY
ARS paid $500.0 million in cash dividends to its stockholders during the year ended December 31, 2011.
No further dividends are expected.

COMPETITION
The worldwide aluminum industry is highly competitive. Aluminum competes with other materials such as steel, plastic, composite materials and glass for various applications.

Global Rolled and Extruded Products
Competition includes Alcoa, Constellium, Novelis, Quanex, Kaiser Aluminum, Hydro Aluminum, JW Aluminum and Jupiter Aluminum.

Global Recycling
Major domestic and international competitors are Scepter, Smelter Service Corporation and Trimet for recycling and Superior Alloys, Audubon Metals, AMAG, Oetinger, Trimet and Raffmetal for specification alloys.

PRIVATE EQUITY OWNED PRE-IPO
Oaktree Funds, 59.68%
Apollo Funds, 18.87%
Caspian Funds, 7.20%

USE OF PROCEEDS
ARS expects to net $138 million from the sale of 9.4 million shares. Shareholders intend to sell 22 million shares, or 70% of the IPO.

ARS intends to use the net proceeds for general corporate purposes, including working capital, capital expenditures, funding the construction of an aluminum rolling mill in China and funding acquisition opportunities that may become available from time to time.

Source: IPO Preview: Aleris