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Pure-play lithium companies Livent (LTHM +0.00%), based in the United States, and Allkem (OROCF +0.00%), headquartered in Australia, announced last Wednesday that they plan to merge to create a company that they forecast will have the world's third-largest lithium production capacity by 2027. The all-stock deal is expected to close by the end of 2023.
Investors liked the news, with shares of Allkem up 19.7% and those of Livent 5.9% higher in the four trading days following the announcement, a period in which the S&P 500 index edged down 0.04%.
Merger and acquisition activity has been heating up in the lithium space. Companies are keen to ramp up their production to meet the soaring demand for the compounds that are used to make lithium-ion batteries for electric vehicles (EVs).
Here's what investors should know.
The name of the new combined company wasn't disclosed. The same is true of its stock ticker symbol. We do know, however, that the new company's stock will have a primary listing on the New York Stock Exchange (NYSE) and maintain a foreign-exempt listing on the Australian Securities Exchange (ASX).
For context, the world's two largest lithium producers by quantity, Albemarle (ALB 0.03%) and Sociedad Quimica y Minera, or SQM (SQM 0.03%), are included in the below table. Neither U.S.-based Albemarle nor Chile's SQM is a pure play on lithium, as both chemical companies have non-lithium businesses.
Company |
Pro Forma Market Cap* | Pro Forma 2022 Lithium Revenue |
Pro Forma 2022 Lithium Adjusted EBITDA** |
---|---|---|---|
Combined Livent-Allkem Company | $10.6 billion | $1.9 billion | $1.2 billion |
Albemarle | $22.9 billion | $5.01 billion | $3.10 billion |
Sociedad Quimica y Minera (SQM) | $20.1 billion | $8.15 billion | N/A*** |
Data sources: YCharts, Livent-Allkem merger press release, and Albemarle and SQM 2022 annual reports. *Market caps as of May 9, the day before the merger announcement. The combined Livent-Allkem company's market cap is based on the terms of the deal. **EBITDA = earnings before interest, taxes, depreciation, and amortization. ***SQM doesn't break out its adjusted EBITDA by segment.
For an analysis of Livent's latest financial results, you can read about its first-quarter 2023 report here.
Livent and Allkem tout that their businesses are highly complementary and synergistic -- and I agree.
Livent's strengths are its technical and commercial capabilities and long-standing customer relationships, while Allkem contributes a significant growth pipeline, which has been Livent's main weakness relative to other big lithium companies.
Strategic benefits of the combination include:
Financial benefits of the merger include:
Peter Coleman, who's the Chairman of Allkem, will also chair the new company's board of directors. Livent CEO Paul Graves and CFO Gilberto Antoniazzi will maintain their respective roles at the new company.
The combined company will be incorporated in Jersey (a Channel Island off the coast of France), with its corporate headquarters in North America (exact location not specified) and its corporate residency in Ireland.
Livent is headquartered in Philadelphia and has significant processing operations in North Carolina, so there seems a good chance that the City of Brotherly Love or somewhere in The Tar Heel State could be frontrunners for the headquarters of the new company. Jersey and Ireland are easy to explain -- they're both known to be "corporate-friendly" from corporate tax and other financial standpoints.
In short, this proposed merger seems that it will benefit shareholders of both Livent and Allkem. The combined company's stock will be at least worth watching.