Posted on 10 Oct 2024
Mining giant Rio Tinto will acquire chemical producer Arcadium Lithium for $6.7 billion in an all-cash deal that follows a failed takeover attempt of Anglo American, Kallanish reports.
Under a definitive agreement announced by the companies on Wednesday, Rio will pay $5.85 per share of Arcadium. This represents a 90% premium to Arcadium’s closing price of $3.08/share on 4 October, and a 39% premium on the volume-weighted average price since Arcadium was created on 4 January.
The transaction is set to close in mid-2025, subject to Arcadium shareholders approval and customary regulatory clearance. Both board of directors have unanimously approved the deal.
Rio Tinto explains the rationale for the takeover basically lies on four factors: Tier 1 assets, complementary capabilities, compelling economics, and right timing. The takeover will strengthen the company’s position as a global leader in energy transition commodities.
“Acquiring Arcadium Lithium is a significant step forward in Rio Tinto’s long-term strategy, creating a world-class lithium business alongside our leading aluminium and copper operations to supply materials needed for the energy transition,” explains Rio Tinto ceo Jakob Stausholm. “This is a counter-cyclical expansion aligned with our disciplined capital allocation framework, increasing our exposure to a high-growth, attractive market at the right point in the cycle.”
Arcadium’s chairman Peter Coleman told shareholders that developing and expanding lithium production involves significant capital investment, construction challenges, regulatory hurdles and market risks, including unprecedented price volatility. “By accepting this proposed transaction from a larger, more diversified player, shareholders can avoid these risks as well as potential delays or setbacks in project execution, in exchange for immediate returns,” he says, urging shareholders to approve the transaction.
Paul Graves, ceo of Arcadium, adds management is confident that this is a compelling cash offer that reflects a “full and fair long-term value.” It demonstrates the value created over the years by Arcadium’s predecessor companies – Australia’s Allkem and US’ Livent, he adds.
The move highlights Rio Tinto’s commitment to lithium, having purchased the Rincon asset in Argentina in 2022 with the hope of becoming a multi-asset producer by decade-end, Andy Leyland, managing director of consultancy SC Insights, tells Kallanish.
“Rio came into the lithium sector off the back of its Boron facility in California and troubled Jadar project in Serbia… At Boron the lithium output is a small by-product; Jadar is facing very public protests and environmental challenges; and Rincon will be likely be a high-cost asset given grade and salar size. As lithium valuations tumbled with the price, the buy vs build equation has most definitely flipped, adds Leyland.
Before the bid, Arcadium’s market capitalisation was hovering around $3 billion. “That’s not far off what Rio have spent on lithium over the years without producing any meaningful volumes,” he concludes.
Rio Tinto is set to be a leading vertically integrated lithium player globally. Arcadium has resources in Argentina and Australia, plus downstream conversion assets in the US, China, Japan and the UK.
Source:Kallanish Power Materials
