As previously reported, Rio Tinto (RIO.UK) has decided to acquire Arcadium Lithium (ALTM.US). The transaction is expected to be conducted entirely for cash, with an estimated value of $6.7 billion.
Arcadium Lithium is one of the leading lithium mining and processing companies. Estimates indicate that the company currently accounts for 5% of the world's supply of the metal, and some analyses suggest that its share of the global market will increase to 6% by 2028. The company operates in Argentina, Canada and Western Australia, among other countries.
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Open account Try demo Download mobile app Download mobile appThe company's merger with Rio Tinto will mean the creation of a conglomerate with one of the largest lithium production bases in the world. On top of that, for Rio Tinto it means continuing to diversify its portfolio with increasing exposure to the lithium market. Moreover, from the company's perspective, the portion of the Arcadium Lithium business operating in Argentina may be of particular interest, which could create synergies with Rio Tinto's other lithium-related project in the region - the Rincon Lithium Project.
Willingness to acquire Arcadium is a counter-cyclical move, given the strong declines seen in mining companies recently, particularly in lithium, where the market continues to present strong oversupply signals. Despite the currently tough market environment, the move represents an attempt to position for a possible improvement in the market in the future while taking advantage of the low valuations of mining companies. Moreover, Rio Tinto's acquisition may help the development prospects of Arcadium Lithium's projects, which, due to problems on the lithium market company might not be able to finance on its own.
Although Rio Tinto's $6.7 billion offer is significantly lower than some valuations suggesting Arcadium Lithium's value at $8.5 billion, it still implies a purchase price of $5.85/share, a premium of as much as 90% over the price on October 4 (the last day before the companies confirmed entering talks on the offer) and at the same time a premium of more than 38% over the last closing price. In response to today's news, Arcadium Lithium's stock price shot up nearly 32% in pre-opening market trading to $5.56.
Source: xStation
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