Roughly a month ago, I saw a few posters batting about the idea of PLS acquiring LTR. I wanted to think it out, and after some consideration, I think the actual winning plan would be a stock swap merger of the two firms.
Consider these strengths:
1. They have two of the best management teams in the industry, and combined, would be the best managed firm in the industry, bar none.
2. Within two years, PLS will be producing 1,000 ktpa of SC5.2-SC5.3 while LTR will be producing 511 ktpa of SC6. As a combined AUSTRALIAN firm, that means they can provide both quantity and, when needed, quality. Once Lithium prices inevitably rebound, the combined firm would be a cash cow, able to easily finance their (both firms') next planned expansions.
3. Both firms have just announced quarterlies, and while the financial world is a moving target, only a month ago, PLS had $2.1B in the bank and LTR had $500M. That’s a fair piggy bank for the two firms’ near term CAPEX.
4. PLS is already partnered with POSCO for downstream LiOH production, and is allegedly looking at a new, similar JV deal, while LTR is currently negotiating such a deal, allegedly, with Sumitomo. PLS can assist LTR with avoiding any pitfalls with their experience in this area.
5. PLS has already approved, and recently started construction on, the Calix JV. LTR can benefit from PLS’ experience, here, as well. With LTR already having such an extensive renewable power base, they would be perfect for the Calix calcination process, while PLS could benefit from LTR’s recent experience with constructing renewables. One of the beauties of the Calix process is that the calcination process is step one; from there, you can just as easily modify the reagent process to produce Lithium Sulfate, rather than Lithium Phosphate, at the mine site, which is how the vision for the LTR-Sumitomo partnership has been explained (go midstream with Li2SO4 at the KV site and then ship that to Japan for downstream processing to LiOH).
6. While I think LTR has an excellent team (Lycopodium, Byrnecut, et al), they could certainly still benefit from PLS’ experience with commissioning and ramp-up.
As an aside, Calix has had recent problems, and PLS might want to consider buying Calix out of their JV and keeping the IP for the electric calcination process. I wouldn’t buy the whole firm, because Calix does a lot of things that have nothing to do with Lithium, but Calix can use the money and PLS is already bearing a large part of construction costs due to Calix providing the IP, and can probably buy the IP for $15M-20M, right now.
One of the beauties of such a merger is that, other than some consultancy fees, it would cost very little. Just pick a closing date and a pricing date, and on the pricing date close, the relative value of each firm determines the proportion of shares allocated to each firm. Neither firm pays cash to the other.
Even when determining redundancies, the fact that LTR is still ramping-up employment means that there are positions currently unfilled at LTR which can be filled by existing experienced PLS employees. There should be far fewer redundancies than most mergers/takeovers.
Another beauty of such a merger is that the combined company would be that much larger than either is as a stand-alone, meaning it would be far more expensive and difficult for an outsider, especially of the Chilean, Chinese or American sorts, to swoop in and take away from Australian shareholders. Did I mention that the combined firm would be 100% Australian?
Of course, there are a handful of weaknesses or challenges, including the fact that LTR will likely be a bit of a cash drag for a few quarters, but their own cash pile should cover most of it, and PLS’ cash pile removes the financing costs and risk, immediately accreting value to the LTR side of the equation.
There’s also the possibility that GR and CE block such a scheme, but in reality it would seem that they would both own fairly sizeable chunks of a much larger and more valuable entity, so unless their intentions are nefarious, like choking LTR until they can swoop the whole pie at a pittance, they should be happy with the arrangement.
I’m not looking to make this a novel, so I’ll stop there and let other posters either add or detract from the idea, but I’ve taken some time to think this out, and it makes far more sense to me. Total disclosure, I own shares of both; roughly twice as much value in my PLS holding as my LTR holding.
Best regards to all!
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