To buy Arcadium Lithium in an all-cash deal valuing the U.S.-listed miner at $6.7 billion
Rio will pay US$5.85 per Arcadium share, a 90 per cent premium to the target’s closing price on Oct. 4 — before Rio first confirmed that it had made an approach.
Major miners have been returning to acquisitions but with caution, given poorly timed and ill-conceived deals during the last commodities boom that left companies and shareholders to deal with painful writedowns. Rio has been even more tentative than its heavyweight peers like BHP Group Ltd., which made an offer for Anglo American PLC earlier this year. Rebuffed, BHP eventually walked away.
“The reality is that Rio really hasn’t grown in a decade, but now we’re back,” Rio chief executive Jakob Stausholm said.
The miner began more seriously considering options at the start of the year, looking at “basically all of the lithium projects around the world,” Stausholm said.
“It was a huge piece of work, but what became very clear to us was we would like to have exposure to brines,” he said, adding Arcadium produces battery-grade lithium from direct extraction, a new technology that removes the need for expensive downstream processing plants.
For Rio, which has faced activist opposition at its yet-to-be-developed Jadar lithium mine in Serbia, Arcadium provides a rapid output boost.
‘Fair price’
Investors in the acquired producer, formed at the start of this year with the merger of Allkem Ltd. and Livent Corp., had publicly expressed concerns that Rio would seek a bargain, given the stock roughly halved in 2024. One investor, Blackwattle Investment Partners Pty Ltd., said in a letter to the board that “the timing of this potential sale could not be at a more value destructive period for shareholders.”
Arcadium chairman Peter Coleman said the deal should help fund brine and hard-rock lithium projects in China, Argentina, Canada and Australia, even in difficult markets.
He wrote in a letter that “by accepting this proposed transaction from a larger, more diversified player, shareholders can avoid these risks as well as potential delays or setbacks in project execution, in exchange for immediate returns.”
For Rio, with a market capitalization of US$112 billion, Arcadium is seen as a bolt-on deal. It’s still a test of the miner’s dealmaking mettle in a new era of constrained spending, as the biggest acquisition since Rio’s US$38 billion all-cash acquisition of Alcan Inc. in 2007. That purchase, after a bidding war, ultimately left Rio with US$29 billion of charges.
“Alcan, in hindsight, was bought at the top of the cycle,” Stausholm said. “We feel quite comfortable that we have not bought a lithium company at the top of the cycle right now. We had to pay a fair price, and that’s what we’re paying.”
Rio’s shares were down 0.5 per cent to £50.17 as of 10:12 a.m. in London. Arcadium was up more than 30 per cent in pre-market trading in the U.S.