Wesfarmers is believed to have held talks with Lynas Corporation about a joint venture project in Australia for several months before it lobbed a $1.5 billion takeover for the company.
It is understood that Lynas (LYC) was considering a plan to open another plant in Australia that would be jointly owned with the Perth-based conglomerate (WES) should it need to close down its Malaysian operations.
The company is in disagreement with the Malaysian government over the storage of waste material at the Lynas Advanced Materials Plant.
However, it is understood that the Lynas board dragged its feet on the Australian move.
Wesfarmers has now instead opted to launch a takeover of the business at a time that its shares are trading at an opportunistic price.
Wesfarmers declined to comment on any talks with its target.
However, sources close to the company said about $1bn had been invested into the Malaysian plant and a closure of the operation would not make sense.
Lynas has been at odds with the Malaysian Government over a directive to remove some of the waste stream from Malaysia to renew its operating licence.
Wesfarmers is offering $2.25 per share for Lynas via a scheme of arrangement after shares yesterday closed at $1.555.
The offer is a 44.7 per cent premium to its last closing share price and is conditional on due diligence and that relevant operating licences in Malaysia remain in force for a satisfactory period.
A year ago, the shares were trading at $2.48 but later slid as low as $1.59.
Lynas generates rare earths used to make magnets used in wind turbine generators and Wesfarmers sees the business as complementary because of its own mining and chemical processing expertise and track record of working with diverse stakeholders and government.
Highbury Partnership and UBS are advising Wesfarmers on the proposal.
The bid by Wesfarmers comes after speculation emerged in November last year that the company could be circling Mineral Resources’ Wodgina lithium project, offering further clues that the group had been exploring opportunities to gain exposure to minerals used to capitalise on the trend of a move more towards clean energy such as electric cars.
Electric vehicles are powered by electric batteries.
Some fund managers have expressed a negative view on the bid because of the complexities dealing with the Malaysian Government and is not seen as currently a high earning asset, although the prices of rare earths may increase.
They also question the level of synergies with the deal and are betting the transaction could be the start of a new division for Wesfarmers with special commodities.
Wesfarmers shares were down by more than 3 per cent in early afternoon trade.
Macquarie Asset Management on buying spree in New Zealand
Fresh from striking a $24bn deal to sell the Airtrunk data centre giant it co-owned, Macquarie Asset Management is understood to have turned its attention to New Zealand
Roc stays abreast of potential $1bn chicken play
Poultry business ProTen is on the block through its owner Aware Super and Roc Partners is in prime position to snap it up for up to $1bn.