Supercharged

MERGER WITH LIVENT

Need To Know

• All-stock merger with Livent creates US$10.6bn lithium company with assets in South America, Australia, Canada
• AKE shareholders will own 56% of ‘Newco’ which will be third largest global lithium producer
• Newco headquarters in North America, primary NYSE listing, secondary ASX listing via CDIs

Allkem (AKE) and Livent (LTHM.US) believe their combined businesses are highly complementary and can create significant value for the shareholders of both companies. It will become the third largest global producer of lithium products with annual revenue of about US$1.9bn and EBITDA of US$1.2bn.

AKE’s CEO Martin Perez de Solay says, “the combination of Allkem and Livent is transformational with compelling strategic logic… we are bringing together two highly complementary businesses to create a leading global lithium chemicals company”. This is particularly the case in South America where AKE’s brine operations at Olaroz and Sal de Vida are relatively adjacent to Livent’s main assets.

Other than Albemarle, NewCo will be the only other lithium producer with products in spodumene, lithium hydroxide and lithium carbonate, plus specialty lithium chemicals.

AKE’s James Bay project in Canada can be linked into Livent’s Quebec LiOH processing plant. Only AKE’s Mt Cattlin spodumene project the only standalone asset across the portfolio.

The growth pipeline also looks promising with combined lithium production capacity potentially increasing from ~90ktpa in CY23f towards ~250ktpa by CY27f if all projects proceed as planned. The combined lithium reserves will be among the largest in the world. 

Synergies are estimated at US$125m pa with one-time costs of US$40m to achieve it. Additionally, there are approximately US$200m of one-time capex savings on engineering work, infrastructure costs and streamlined construction and procurement.

AKE chairman Peter Coleman will become chairman of NewCo while Livent’s CEO Paul Graves will be CEO of NewCo. The Board will consist of 7 members from each company and will be headquartered in North America (exact details to be decided).

Investment View

The appeal of a scaled up global lithium producer with complementary assets (and hence synergies) looks attractive. This is especially the case while lithium prices have been falling from very elevated levels and demand for product has softened. The combined business will have a more secure pathway to expanding production towards 250ktpa LCE by CY27 with more beyond that date.

The NYSE listing could also attract a higher multiple than what AKE trades on the ASX.
The transaction is subject to a range of approvals, including shareholders of both companies, and an Independent Expert Report is expected sometime in 2H of CY23. Completion of the deal is anticipated before the end of CY23.

AKE’s share price has reacted very positively to the news. There is some transaction risk to consider, but our initial view is the deal strengthens the outlook for AKE shareholders.

Figure 1: Forecast attributable lithium production capacity (ktpa LCE)

Figure 2: CY22 combined revenue by product