M&A activity has been seen as a potential driver of lithium stocks, but initial reaction to the first big deal sparked some volatility, at least initially. Philadelphia-based Livent and Allkem, based in Argentina, announced a merger of equals, creating a $10.6-billion lithium company. LTHM stock rose, but only after slipping in early Wednesday morning action.
The fine print may have been an early concern of LTHM stock investors. Allkem shareholders will own 56% of the value of the combined company, though share prices over the past month imply 53% ownership. In other words, there was no premium for Livent and may have been a slight discount in the eyes of shareholders. But Livent seemed to satisfy any concerns at an 8 a.m. ET investor briefing.
Other lithium plays, including Albemarle and Sigma Lithium, also rose Wednesday.
Livent, Allkem Seek Scale, Synergies
Still, the combined company is expected to benefit from scale and $125 million in annual synergies tied to proximity of operations in Argentina and Canada. They also expect $200 million in one-time savings.
"Together we can accelerate our growth plans and deliver more lithium, more reliably, and more quickly, than either of us can do alone," said Livent CEO Paul Graves.
Graves will be CEO of the combined company with the placeholder name NewCo. The deal should close by the end of 2023.
With key assets in Argentina, North America, Australia and Japan, Livent and Allkem will be well-positioned to serve the U.S. market, with lithium supply that meets criteria of EV tax credits. Their geographies also facilitated a merger, since neither firm has Chilean operations that might be affected by the recently announced bid to partially nationalize lithium mining.
Lithium Prices Bounce
The Livent-Allkem deal comes as spot lithium prices have just begun to bounce after a five-month, 70% sell-off. In a Monday note upgrading Albemarle to neutral from underperform, Bank of America Securities analysts noted that lithium price weakness as buyers drew down inventories appears to have set the stage for a near-term rally. Spot lithium carbonate prices in China have risen 20% over the past two weeks.
Despite the plunge in lithium prices, Livent last week bumped up its full-year earnings and sales guidance, even as Albemarle slashed its outlook. The divergence reflected a different approach to contracts, with Livent's 2023 contracts mostly fixed-price.
Lithium Stocks: LTHM, SGML Move On M&A News
LTHM stock rose 3.9% to 25.18 in Wednesday stock market action after initially edging lower. LTHM stock rallied on earnings last week and has continued to push higher, closing in on its 200-day moving average.
In March, Albemarle proposed a $3.7 billion acquisition of Australia-based Liontown Resources, which spurned the offer. Signa Lithium, which just began production in Brazil, has been the subject of merger speculation, with Tesla among the rumored suitors. Nothing has come of that so far.
SGML stock rose 2% to 38.50, closing in on a 40.03 buy point, according to a MarketSmith analysis.
ALB stock rose 0.7% to 196.50.
