Market experts believe the $US10.6bn merger between Allkem and Livent Group is part of a wider industry trend where major players are looking to defend their market positions.
Recently, Albemarle, the world’s largest lithium producers, bid for Liontown, while SQM, the second largest, has recently been attempting to embark on deals.
By gaining scale, the groups gain more control over supply.
The thinking around the market on Thursday was that a counter bid looked unlikely and that a deal between the two groups looked logical.
While some believe that this rules out a play for Allkem by Rio Tinto, which has been quietly looking at the target, some others say that both US-based Livent and the Australian listed Allkem would have been attractive targets to the Australian miner, and if they were going to move into lithium, they would be looking at a deal of scale.
The acquisition brings upstream and midstream lithium operations together.
Analysts on Wednesday pointed out strong synergies created between the two groups from the deal.
RBC said in research that there were operational efficiencies and scale benefits and possible long-term asset and technology upside.
“MergeCo’s ability to leverage Livent’s leading lithium processing technology and Allkem’s long-term growth optionality suggests upside potential to outlined synergy estimates over the long term,” RBC analysts said in their research.
“We think the most significant upside or optionality resides with Allkem’s Argentinian brine operation given its large resource base.”
Macquarie analysts noted the complementary geographical location of operations and projects in Argentina and Canada.
Announced Wednesday night, the deal creates the fifth largest producer globally of lithium, used to make batteries and in demand with the trend toward electric vehicles.
It comes after the $4bn Brisbane-based Allkem was created through a merger of producers Orocobre and Galaxy Resources in 2021.
Under the buyout, Allkem will hold 56 per cent of the merged entity, implying a 16 per cent premium to the Tuesday closing price of $12.83.
Allkem shareholders will receive one share of the new company for each share they hold and Livent shareholders 2.4 shares for each share.
Livent’s boss Paul Graves will run the merged entity, with the business headquartered in the United States and listed on the NYSE and ASX, and chaired by Allkem’s chairman Peter Coleman, who previously ran Woodside Energy.
The two companies were producing about 60,000 kiliotonnes of lithium per annum in 2020, rising to 90,000 this year, Macquarie said.
UBS and Morgan Stanley advised Allkem on the deal.
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