Rockwood wants Talison

Rockwood Holdings (ROC-N) is bidding $6.50 per share — a 53% premium  — for Talison Lithium (TLH-T) in a deal valuing the company at $724 million on a fully diluted basis.

The pure-play lithium producer’s board of directors has unanimously recommended the all-cash offer to its shareholders, reasoning that it is not only a 53% premium to Talison’s last closing price on Aug. 22 and a 52% premium to its 10-day volume weighted average price (VWAP) of $4.28, but a 59% premium to its 30-day VWAP of $4.08 per share.

Under the proposed acquisition Rockwood — which has its own lithium division — would also acquire 100% of the options to acquire shares through an option scheme arrangement for $6.50 per option less the exercise price.

Shareholder Resource Capital Fund, which holds about 36.8% of Talison, says it supports the acquisition if a superior offer doesn’t come along.

The news sent Talison’s shares up $2.26 or 53.3% to close at $6.50 apiece with more than 23 million shares changing hands. (Over the last year the company has traded in a range of $1.73-$4.52 per share.)

Jonathan Lee of Byron Capital Markets says the offer puts the company up for sale and believes “that there may be a bidding war on a strategic basis that could result in a higher price above our fundamental target price of $6.55 per share.”

The battery technologies and materials analyst based in New York reasons FMC Corp. (FMC-N) has a need for additional feedstock and could be a white knight and bid up the company. FMC, one of the world’s four big lithium producers along with Tailson, Rockwood and SQM (SQM-N),  “is trading at higher multiples than Rockwood and thus an all-cash purchase of Talison by FMC would be less dilutive to its shareholders.” 

For its part, Rockwood Holdings already owns Chemetall, the world’s leading manufacturer of lithium-based compounds and a developer of metal-based fine chemicals for use in specialty applications. Chemetall has lithium production facilities in the United States, Chile, Germany and Taiwan and its lithium-based compounds are used in a variety of applications including base chemicals for numerous industries, drug intermediates, elastomers for car tires and rubber soles, lithium batteries, thermoplastic materials and high-performance greases.

Lee argues Rockwood wants Talison to grow its lithium division. “Strategically it makes sense for Rockwood as the company would become the dominant lithium producer,” he writes in a research note. “Rockwood would have a market share of over 50% of the lithium products sold into various industries.”

Talison is one of four producers — the other three are based in South America — that supply more than 90% of the world’s lithium requirements, according to company data. It has been supplying lithium from its Greenbushes operations in southwestern Australia for over a quarter of a century and became a publicly listed company about two years ago. 

Dahlman Rose & Co. initiated coverage of Talison in May and rated the company as its top small-cap stock pick — liking the company’s growth profile and the outlook for the lithium markets. But analysts Anthony Rizzuto, Anthony Young and Joseph Giordano do not see a competing bid on the horizon. “No other entity could garner the same synergies as Rockwood can from Talison’s assets,” the analysts wrote in a note. “In our opinion, a limited number of entities would be interested in Talison’s assets, and we do not believe that a prolonged bidding war is likely. We would tend to view the Rockwood bid as a full and fare takeover offer.”

An agreement between Rockwood and Talison requires approval under Australia’s Foreign Acquisitions and Takeovers Act as well as Talison shareholders. A shareholders meeting is scheduled for October. A mutual break fee has been set at $7 million.

Earlier this month Talison inaugurated its plant expansion at Greenbushes, which doubles the company’s production to around 100,000 tonnes of lithium carbonate equivalent per year — or about two-thirds of current global demand.