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Constellium IPO to fund global growth

Keywords: Tags  Constellium, aluminum, aerospace, IPO, canstock, Pierre Vareille, Michael Cowden

CHICAGO — Constellium N.V. aims to expand its aerospace capacity, make inroads in the U.S. automotive aluminum sector and play a role in the growing Chinese canstock market as it looks to expand its global footprint, chief executive officer Pierre Vareille told AMM.

The Paris-based downstream aluminum products maker, which began trading on the New York Stock Exchange May 23, will use the money raised from its initial public offering (IPO) to fund organic growth in 2013 and 2014 and new projects in 2015 and 2016, Vareille said in an interview.

The IPO, which also will take place on NYSE Euronext Paris beginning next week, is set to close on or about May 29 and, according to Vareille, is expected to net an estimated $383 million.

While money raised from the IPO has obvious benefits when it comes to funding projects, perhaps the chief advantage of going public is increased visibility for Constellium, Vareille said. "We are a European-based company, but we want to be known globally. And we think there are huge opportunities in the U.S. and also in China."

In the United States, Constellium is looking to increase its participation in the automotive sector, Vareille said. The company already operates two "small plants" in Novi and Van Buren Township, Mich., but would like to grow its automotive manufacturing capabilities as German automakers and suppliers expand in the southeastern United States and as the Detroit-area "Big Three" increasingly use aluminum, he said.

Vareille called Dearborn, Mich.-based Ford Motor Co.’s decision to use more aluminum in its F-150 pickup truck a "tipping point."

"There will be a huge opportunity for players in this industry in the years to come in the U.S.," he said. "Previously, aluminum was in the most expensive, low-production cars. It’s flowing into mass-production cars, and it’s happening now."

Constellium has not decided exactly when or where it might add automotive aluminum capacity in the United States, Vareille said. "If we were to increase our presence in this country, we would look at many locations. It could be Michigan. It could be other places. It’s too early to say."

More immediately, Constellium is looking to boost its aerospace capacity organically to meet "several very significant contracts" recently awarded by Airbus SAS and to meet long order backlogs at both Airbus and Boeing Co. Constellium thinks it has the right manufacturing footprint for aerospace at present, Vareille said, but could add more capacity if necessary in the United States, France or Switzerland.

Constellium’s canstock production facilities are all in Europe, Vareille noted. The company sees the U.S. market as developed, with aluminum already dominating the can sector, but in Europe there is still opportunity for aluminum to replace steel in cans, particularly in Eastern Europe.

The real opportunity for canstock, however, is in China, where consumers are only now switching from glass and plastic containers. If Constellium were to enter the Chinese market for canstock, it would seek a local partner, Vareille said. "China is still uncharted territory."

Among the things that don’t keep Vareille up at night are aluminum prices, the European economy or material substitution, he said.

Constellium looks either to make "back-to-back" deals with consumers so that they pay the same prices as Constellium does for metal, or use derivatives to accomplish essentially the same thing. "We are immune to the variation in the aluminum price," Vareille said, noting that Constellium instead banks on conversion fees for high value-added products.

And while Constellium may be based in Europe, that region’s slowdown isn’t weighing down the company due to its locations elsewhere and the global nature of the markets it serves. "So we are also immune to the issues that the European economy could face," he said.

As for material substitution, Constellium has developed an aluminum-lithium alloy that Vareille described as a "very good weapon" against composites in the aerospace sector. And in the automotive market, composites remain too pricey for mass-produced vehicles. "If you have a high-volume car, switching to composites implies a lot of capex. But switching from steel to aluminum is pretty easy," he said, noting that much of the same stamping equipment can be used for both metals.

Neither is Constellium overly worried about new entrants in a downstream aluminum market that the company is "very bullish" about. Vareille reasoned that it would take another company about $1 billion to build anything of similar scale or complexity to its facility in Ravenswood, W.Va.

And even that’s not enough, he said. "You have to be very technically oriented to make the plants run, get qualified by customers and so on. So we think it is best for us to focus on our three markets (aerospace, automotive and packaging) and really be the best in the world," he said.

The company’s IPO included 22.2 million class A ordinary shares at a lower-than-expected price of $15 apiece. The company previously said it expected the shares to price at between $17 and $19 apiece (, May 20).

Constellium is offering about 13.3 million class A ordinary shares, while the selling shareholders are offering about 8.9 million class A ordinary shares. Of the shareholders’ contribution, about 5 million are being sold by affiliates of Apollo Global Management and 3.9 million are being sold by affiliates of Rio Tinto Plc, the company said.

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