Allkem and Livent bosses face down criticism of $16b lithium merger
Senior executives at Allkem and Livent say investors are supportive of the $US10 billion ($16 billion) merger between the two mining groups despite increasing concerns that volatility in the lithium price is making the deal, struck in May, increasingly unattractive to the former’s shareholders.
Allkem managing director Martín Pérez de Solay and his Livent counterpart, Paul Graves, are in Australia to meet investors this week before a shareholder vote on the deal on December 19. There have been – so far limited, but growing – calls for the deal to be reconsidered, and it has been described by Jefferies analysts as a “cheap reverse acquisition of Allkem”.
Livent chief executive Paul Graves and Allkem boss Martin Perez de Solay are united on merger plans. Edwina Pickles
Some local fund managers are also unhappy that Allkem will account for only 56 per cent of the combined entity – to be known as Arcadium Lithium – and that the merged group’s primary listing will be in New York.
“It is looking increasingly unattractive,” said Raphael Lamm, co-chief investment officer at Melbourne’s L1 Capital, which holds Allkem shares.
Allkem shares are down 30 per cent at $9 since the all-scrip deal was struck.
But Mr Pérez de Solay said he had not received negative feedback from shareholders, and most analysts continued to back the merger. The companies released a 630-page document explaining the merger late last week, which included approval by independent expert Kroll.
Mr Graves said criticism of the deal was isolated to a few voices and claims that Livent should be paying a larger control premium were misguided.
“The market is speaking pretty clearly about its support for the deal,” he said in an interview from Sydney on Sunday. “It is always possible to pull out a voice or an anecdote here and there, but it’s certainly not representative of what the market as a whole seems to be saying.”
Last week, it was analysts at Jefferies who were questioning the deal. “Livent needs Allkem far more than Allkem needs it,” they told clients, although some of the analysis and valuations have been disputed by the company.
Mr Graves said the merged entity, Arcadium, wanted to maintain a strong presence in Western Australia, where Allkem has the Mt Cattlin mine. He indicated that Arcadium would take a “wait-and-see” approach amid the frenzy of deals unfolding in WA at high valuations, which has led to billionaires Gina Rinehart and Chris Ellison squaring off against industry bigwigs Albemarle and SQM for undeveloped projects.
“Things have got to go really well in lots of different areas for some of those deals to make sense, whether it’s the complexities of bringing new projects online or the implied price of spodumene concentrate underpinning them,” he said.
The independent expert’s report found that the merger ratio weighted 56:44 in favour of Allkem was fair.
Analysts at Barrenjoey said a bone of contention in the expert’s report could be that Allkem was contributing about 73 per cent of resources and 66 per cent of capacity. There was minimal detail on the breakdown of Livent’s valuation in the expert’s report, which favoured Livent by assuming higher long-term prices for lithium hydroxide over lithium carbonate, they added.
The independent expert valued Allkem at $US5.3 billion to $US6.4 billion and Livent at $US4.5 billion to $US5 billion.
The merged entity will have the capacity to produce and process a range of lithium materials across assets in Argentina, Canada, the United States, Australia, Japan, China and the United Kingdom.
Mr Pérez de Solay said that kind of coverage across the lithium value chain made even more sense in a volatile market. The point of the deal is to create a vertically integrated lithium company with mining and processing.
“Regardless of where the profit is shifted to, you will always make sure that (profit) is settled in the company. That continues to make a lot of sense and even more in the volatile market that we are seeing,” he said.
Jefferies’ analysts also criticised the plans to list Arcadium on the New York exchange with a secondary listing on the ASX given the 56:44 split and Allkem’s strong Australian investor base.
Mr Graves, who is poised to lead Arcadium, said there were no plans to re-consider the listing structure. He said Arcadium would be crazy to neglect its Australian investors and vowed to support the locally traded securities, which are CHESS depositary interests. “I don’t think you’ll find Australian investors feeling like second-class investors,” he said.
