[ad_1]
This evaluation is by Bloomberg Intelligence Business Analyst Sean Gilmartin and Bloomberg Intelligence Senior Business Analyst Jason F. Miner. It appeared first on the Bloomberg Terminal.
The proposed merger of Livent and Allkem, which might create a $10.6 billion entity and doubtlessly the third-largest lithium maker by 2027, stands out as the clearest signal but that the second for lithium M&A has arrived. Scale is essential as demand for EVs and battery materials surges. The brand new firm has a reputable path to 250 kt LCE capability, which might place it behind leaders Albemarle and SQM.
Lithium trade seems poised for M&A wave
The proposed tie-up between Livent and Allkem might sign that an acceleration in M&A exercise throughout the broader lithium house has arrived. Plenty of elements are at play, however we predict the underside line coalesces round three crucial factors. First, near- and longer-term demand projections stay strong and intact. The projected five-year compound annual progress price of 20%-plus seem cheap and will even be conservative. Second, after a file run larger in lithium costs final yr, steadiness sheets throughout the most important producers are stable and there’s money to deploy for progress through elevated capital spending and potential acquisitions. Third, costs have declined significantly in 2023 (see desk under), seemingly making valuations extra cheap and serving because the potential last push for extra junior producers to get offers completed.
The great outweighs the unhealthy for Livent
The proposed merger of equals between Livent and Allkem is smart, we consider, for a number of causes — scale, vertical integration with brine and arduous rock belongings, bolstered footprint throughout crucial lithium geographies (Australia, Argentina and North America) and simply captured synergies given an overlap in belongings, logistics and capital spending. Nonetheless, we predict there could possibly be some cheap reservations from Livent shareholders. Livent has a clear, operational execution story and it has constructed momentum and credibility. Although we don’t suppose that disappears with the brand new mixed firm (NewCo), the narrative does change into extra complicated. The deal’s construction additionally leaves Livent holders with a minority 44% stake in NewCo in contrast with Allkem’s 56%.
Accelerated scale a crucial win for NewCo
Probably the most essential facet of the deal, significantly for Livent, we consider, is that it’s going to present wanted scale at a faster tempo with vertical integration throughout brine and arduous rock belongings. Given lithium-demand tendencies, we consider these with manufacturing scale have a definite benefit over the subsequent 5-10 years. Based mostly on firm projections for attributable lithium-output capability (chart under), NewCo has a reputable pathway to about 250,000 metric tons of lithium carbonate equal (kt LCE) by 2027. This is able to make it the third-largest producer of the chemical behind Albemarle and SQM.
Livent expects 2023 gross sales quantity to be about 25 kt LCE on a standalone foundation. Capability has been a limiting issue, however the merger with Allkem may change that in a big manner.
Complementary expertise, merchandise, geographies
Exterior the rapid enhance in working and industrial scale, the dovetailing portfolio overlap between Livent and Allkem additional underlines why we predict this deal makes lots of sense. NewCo will boast a balanced product lineup throughout crucial lithium supplies, together with spodumene, carbonate, hydroxide and specialties. These merchandise have a myriad of essential functions, however battery-grade hydroxide and carbonate for the all-important electric-vehicle market is most important. NewCo will even be vertically built-in from each arduous rock (spodumene) and brine belongings, permitting for added raw-material variety and sharing of mining-process data.
We additionally just like the geographic footprint of NewCo, with publicity to Australia and the Americas. Overlap of operations in Argentina and Canada ought to permit for synergies.
NewCo can convey new group of traders
The mixture might permit for a brand new tranche of traders as NewCo — with a market capitalization of about $11 billion — could be thought of a large-cap lithium chemical maker. We predict this stature opens the door not just for inclusion in additional indexes, however for traders to noticeably examine NewCo with Albemarle and SQM. At roughly 250 kt LCE by 2027, NewCo would have the manufacturing capability to compete with each of these firms. It could be vertically built-in throughout brine and arduous rock belongings and have the flexibility to make battery-grade lithium chemical substances. It could additionally carry a large enough market cap to be included in inventory screens.
Standalone Livent and Allkem have been every mid-cap firms with market values of $5-$6 billion as of Might 9.
[ad_2]