Livent (NYSE:LTHM) stock is advancing in early trading after the lithium maker agreed to merge with Allkem (OTCMKTS:OROCF), an Australian lithium miner. The deal values the combined company at $10.6 billion.
As of yesterday’s market close, the market capitalization of LTHM stock was $4.35 billion.
More About the Deal
As a result of the all-stock transaction, the owners of Livent’s shares will obtain 2.406 shares of the combined company for each share of Livent that they own. Allkem’s shareholders will receive one share of the new company for each share of Alkelm.
Cumulatively, Livent’s shareholders will receive about 44% of the new firm, and those of Allkem will obtain a combined stake of about 56%.
Livent and Allkem expect to reduce their annual operating expenses by about $125 million due to the merger, in addition to obtaining approximately $200 million of “one-time capital savings.”
Background on the Lithium Sector
Last year, Tesla (NASDAQ:TSLA) CEO Elon Musk, noting that the margins of lithium refiners had become nearly as high as those of software makers, urged more businesses to start refining the metal. Lithium, of course, is a major component of electric-vehicle batteries.
Earlier this week, Tesla itself started construction of a large “lithium refinery” in southern Texas.
Meanwhile, worries about an effort by Chile’s president to partially nationalize the country’s lithium mines have, in recent weeks, weighed on two of the most prominent names in the sector — Albemarle (NYSE:ALB) and Chile’s Sociedad Quimica (NYSE:SQM).
But the president probably does not have the votes in the Chilean Congress to approve the move, and he has said that he will honor the companies’ existing mining concessions. Also importantly, “Albemarle’s concession lasts until 2043, while Sociedad’s deal expires in 2030.”
Since reaching $72 on Feb. 1, the Global X Lithium & Battery Tech ETF (NYSEARCA:LIT) has slid 7.5% to $62 as of today’s early trading.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
