US lithium miner Livent will meet investors in Allkem Australian in the coming week ahead of a vote next month on a $10.6-billion merger that could create the world’s third-largest producer.
Merger talks between the two groups have been going on for a couple of years and were agreed on in May, but come amid weakening demand and prices in the volatile lithium market.
Merging the two companies would create the world’s third-largest lithium producer by volume with assets spanning Australia, Canada and Argentina, after US-based Albemarle Corp and Chile’s SQM.
Livent CEO Paul Graves will take the top job at the newly minted Arcadium Lithium, if Allkem shareholders vote for the deal on December 19. The transaction has been recommended by independent experts in a report compiled by Kroll.
Graves has said that one of his first priorities would be expanding Arcadium’s footprint in Western Australia’s world-class lithium districts.
Buyout activity blocked by magnates
Buyout activity in the world’s major lithium supplier has been frenzied this year with at least two potential deals by global chemicals firms thwarted as mining magnate-led companies amassed blocking stakes.
Albemarle ditched its $4.3 billion deal for Liontown Resources after Hancock Prospecting popped up on Liontown’s register with a near 20% shareholding, and emphasised its ability to execute the project as a potential partner.
“The starting point is, we know that there are world-class assets in Western Australia so if you want to be owning and operating the best asset you have to be working over here,” Graves said.
Under the deal, Allkem shareholders will get one share in the combined entity for each of their shares and the company will ultimately own 56% of the new firm.
Livent shareholders will get 2.406 shares in the new firm, which will be called Arcadium Lithium, for each existing share.
The world’s largest lithium producers, including Livent, have said they remain bullish on long-term demand despite recent price drops led by fears electric vehicle adoption is slowing.
Livent Corp posted a lower-than-expected quarterly profit two weeks ago and cut its annual revenue and earnings forecast, blaming expansion delays in Argentina.
Assets in close proximity offer synergies
The companies have estimated the deal would create pre-tax operating cost synergies of approximately $125 million per annum by 2027.
“Allkem and Livent … have operating and development assets that are in relatively close proximity in Argentina and Canada, creating opportunities for shared infrastructure, coordinated operations, and more efficient logistics,” the Kroll report said.
“Such proximity can lead to more efficient resource utilisation, cost savings, and capital expenditure savings, creating a particular set of synergies that are not as readily achievable when assets are geographically dispersed.”
Livent was formed in 2018 when FMC Corp spun off its lithium division. Allkem was formed in 2021 by the combination of Galaxy Resources and Orocobre.
- Reuters with additional editing by Jim Pollard