UBS, MS tapped for $US10bn Allkem merger with Livent

A worker at a factory which makes lithium batteries for electric cars and other uses, in China's eastern Jiangsu province. Picture: AFP

Australian lithium miner Allkem has struck a $US10bn ($14.79bn) merger plan with the New York listed Livent with former Woodside Energy boss Peter Coleman to chair the combined company, the fifth largest lithium producer in the world.

The Brisbane-based Allkem was created through a merger of producers Orocobre and Galaxy Resources in 2021, as the pair bulked up to create a $4bn producer of raw materials used in electric vehicle batteries.

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. The deal - announced after market close on Wednesday - involves Allkem shareholders getting one share of the new company for each share they hold and Livent shareholders 2.4 shares for each share.

It will lift the combined company into the top five producers globally behind Albemarle, SQM, Ganfeng Lithium and Tianqi Lithium Corp.

It marks the latest buyout in the sector as global interest in the battery making material surges and follows West Australian lithium producer Liontown Resources rejecting a $US3.7bn takeover bid by mining giant Albemarle.

The transaction would create a producer with 2022 combined revenue of

approximately $US1.9bn and adjusted earnings of $US1.2bn. A primary stockmarket listing would be in New York with a secondary ASX listing.Allkem shares have gained 17 per cent in the last year, with the company valued at $8.23bn at the close of trade on Wednesday.

The deal has already been unanimously approved by both companies’ boards with Allkem subject to an independent expert continuing to conclude the scheme is in the best interest of Allkem shareholders.

Livent chief executive Paul Graves will take the top job with Allkem boss Martín Pérez de Solay to provide consulting services.

Allkem’s portfolio includes a lithium brine operation in Argentina, a hard-rock operation in Australia and a lithium hydroxide conversion facility in Japan.

In Argentina, it has the Olaroz lithium facility in the north of the country, the Sal de Vida lithium mine, capable of producing 15,000 tonnes per annum of lithium concentrate, and the Cauchari mineral resource south of Olaroz.

The combined company on Wednesday touted significant cost synergies and capex savings given the location of assets in Argentina and Canada and the opportunity to co-develop and de-risk future expansion projects and operations. It expects $US125m a year of operating synergies and one-time capital savings of approximately $US200m with a deal expected to close by the end of calendar 2023.

“We are bringing together two highly complementary businesses to create a leading global lithiumchemicals company, building on Allkem’s demonstrated track record of integration,” Mr Pérez de Solay said.

“The combination brings together teams with strong expertise in project development,

product innovation, and marketing, and sets us up for a faster and de-risked delivery of the next phase of our growth.”

The deal also puts Mr Coleman, the high-profile former boss of Woodside Energy, back in the spotlight. The ex-energy executive was appointed in October 2022 as chairman amid a plan to triple production within four years.

UBS and Morgan Stanley advised Allkem on the deal.

The merger plan comes as the price of spodumene, the mineral source from which lithium is extracted, recently halved from its peak on weaker China demand as it works through its inventory, although it has recently been staging a recovery.

This was after the price of lithium, used to make batteries in electric vehicles, rocketed almost 250 per cent over a year to hit about $US494 ($788) a tonne at the start of October.

Analysts at UBS recently trimmed their forecasts for the price of the commodity by 10 to 30 per cent over 2023 and 2024, reducing earnings forecasts by 10 to 40 per cent.

UBS has also reduced its lithium demand forecasts by 5 to 15 per cent in the short term and now see the market more closely balanced.

But long term, UBS increases its price expectations by about 20 per cent, with a deficit of lithium expected later in the decade.

In its recent quarterly update, Allkem said group revenue for the quarter was $US315m and the group gross operating cash margin was about $US269m. At March 31, group net cash was $US557.9m, up $US25.9m from December.