Who’s Next? was the question on the ASX on Thursday after investors went searching for more candidates for mergers and acquisitions action after more than $21 billion in bids and deals since March.
The latest was of course the $A15.7 billion all paper merger proposal between Allkem and Livent which will see a global lithium major established out of the two companies with assets in the US, Canada, Argentina, China, Australia and the UK.
This week’s idea took the market by surprise – no careful leaks to business media to warm up investors – just as the Albemarle $5.2 billion offer to Liontown in March (at $2.50 a share) came out of the blue.
The remaining prizes on the ASX are the big local players – Pilbara Minerals, IGO and Mineral Resources, whose CEO Chris Ellison has always seen himself and his company as the major force, but has been pushed to down the lithium pecking order by the growth of the other two.
Mineral Resources frustrated an attempt by the Tianqi and IGO joint venture to get control of Essential Metals in a $136 million attempted takeover in March and April.
Mineral Resources bought enough Essential shares to frustrate the takeover because CEO Ellison claimed its interest were close to his company’s mines in the Pilbara.
Allkem shares rallied as much as 18.6%, and settled to end up 15.7% and shares in Australia’s biggest independent lithium producer Pilbara Minerals rose as much as 8% and ended the day with a 5% gain.
Developer Lake Resources, which specialises in the same type of lithium extraction technology in Argentina as Livent, jumped 12.7%. Others including Liontown, up nearly 2% (and ending at $2.93, well above Albemarle’s $2.50 bid price). Core Lithium shares were up 8.8% and Sayona Mining rose 5%.
Shares in Mineral Resources and IGO were up more modestly with gains of 1.4% each while Piedmont Lithium shares rose 3.6%.
Allkem CEO Martin Pérez de Solay (who will be a consultant to the merging company) cited the broader range of lithium products it would be able to offer key customers such as Toyota, which also holds 6.16% of Allkem shares through its trading unit, as a key rationale for merging with Livent.
He said in an interview with Reuters that Toyota is “quite positive” on the deal.
“We are all looking forward jointly with them on a larger and deeper business relationship with the Toyota group,” he said.
Allkem director Peter Coleman will become the chairman of the merged company, leading a 14-member board consisting of seven directors designated by Livent and seven designated by Allkem. Livent CEO, Paul Graves becomes CEO of the new company.
The big drawback for the deal is the concentration of assets (most of them are from Allkem) in Argentina which doesn’t have a free trade deal with the US (as does Chile, Mexico, Canada and Australia) which means no access to the $US369 billion in assistance in the Inflation Reduction Act. The IRA specifies that battery and renewable materials have to come from the US or from a country with a free trade deal.
Argentina doesn’t and that could be a handicap for the merged company, especially with Allkem now basing itself in Buenos Aires.
The merger is expected to create combined annual revenue of $US1.9 billion, adjusted EBITDA of $US1.2 billion, and will look for cost cuts of $US200 million and pre-tax synergies of $US125 million, driven mainly by the proximity and co-development of their projects in Argentina and Canada.
Governments around the world are rushing to secure minerals such as lithium, copper, nickel and rare earths that are urgently needed as raw materials to build renewable energy networks and make electric cars to combat climate change.
Allkem has operations in Australia, Argentina and Canada and was rumoured to be a potential takeover target of Rio Tinto. Livent has brine production in Argentina, a hard-rock based lithium project in Quebec, and lithium refineries in the US and China. The company also has a supply agreement with German luxury carmaker BMW.
The merger will strengthen both companies’ position in Argentina and Canada “and consolidate global sales at a time when the lithium market is correcting from last year’s dramatic upturns,” said Susan Zou, an analyst at Rystad Energy told Reuters. She likened the deal to the 2021 merger of Galaxy Resources and Orocobre that created Allkem.
The merger is expected to be completed by the end of 2023.
