Chanticleer
Liontown’s true believers will decide Albemarle deal’s fate
The lithium hopeful’s retail investors will get a 15-fold return in just three years, thanks to the US miner’s latest bid. But whether it is enough to secure their backing may depend on chairman Tim Goyder.
Ever since former Rio Tinto chief executive Tom Albanese declared in late 2007 that BHP’s takeover offer for Rio was “ballparks” away from what was required to clinch the deal, deal makers in the mining sector have been trying to figure out just how big a “ballpark” actually is.
We may have received our answer on Monday morning, when the board of lithium hopeful Liontown, led by chairman Tim Goyder, unanimously agreed to back a $3-a-share bid for the company from US miner Albemarle.
Tim Goyder could be the key to Albemarle’s bid for Liontown. Trevor Collens
Liontown had rejected a $2.50-a-share offer in March. And just two months later, chief executive Tony Ottaviano borrowed Albanese’s line and told the Australian Financial Review Mining Summit in Perth that Albemarle’s offer was “ballparks away”.
So on Liontown’s reading at least, a 20 per cent higher bid meets the definition of a ballpark.
Mystery solved! Or maybe not.
There is no question that Goyder, Ottaviano and their bankers at Greenhill & Co and UBS have done an impressive job walking the offer price from Albemarle through almost 12 months of negotiations.
This continued over a frantic weekend. Chanticleer understands Albemarle lobbed a bid on Friday that left the Liontown board unimpressed, but the two parties eventually reached agreement on Sunday.
Although the 20 per cent premium represents an extra $1.1 billion in the pockets of Liontown shareholders, it also represents a 36 per cent premium to the $2.20-a-share offer that Albemarle turned up with in October last year, and a staggering 97 per cent premium to Liontown’s share price on March 27, the day before Albemarle’s bid was made public.
Talking a big game
Those close to the deal say the board has delivered for investors by holding firm over an exhausting process in which Albemarle has made six bids through gritted teeth. And as a result, a lithium company whose main asset, the Kathleen Valley project, is still a good 18 months away from full production is now worth $6.6 billion.
But for all that, there is likely to be a bit of surprise that Liontown has settled for a 20 per cent increase.
While Ottaviano was obviously using a bit of poetic licence when he echoed Albanese’s infamous “ballparks” call, there is no question that Team Liontown had been talking a big game about holding out for a higher price from Albemarle, given the long-term outlook for lithium demand and the strategic benefit to Albemarle of getting its hands on the Kathleen Valley mine.
According to the Liontown theory, not only could Kathleen Valley provide the feedstock for Albemarle to expand its Kemerton lithium processing plant near the West Australian town of Bunbury, but it could also give Albemarle greater influence over global lithium supply, demand and price, in what is already proving to be a very volatile sector.
The Liontown camp also argued that Albemarle would need to pay up because of Liontown’s unusual share register, where Goyder owns 15 per cent of the company, and as much as 20 per cent of the stock is in the hands of his friends and associates from WA. This group came to be known as the “Lionaires” (for Liontown millionaires) or “Goyder’s groupies” for their loyalty to the chairman and their belief in Liontown’s glittering future.
Liontown shareholders must approve the deal via a shareholder vote, and the view inside Liontown is that Goyder’s recommendation will carry plenty of weight among the Lionaires. The Albemarle offer takes risks associated with getting Kathleen Valley into production, and delivers the true believers a 15-fold return in the space of just three years.
No one can doubt that’s ballpark stuff. But the fact that Liontown shares were sitting at $2.88 on Monday morning might suggest retail investors will take their time to digest the size of their victory.
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