The Allkem Ltd (ASX: AKE) share price has jumped 15% after the ASX lithium share revealed a merger with Livent Corp (NYSE: LTHM).
Allkem to merge with Livent
The two lithium businesses are merging to create a leading global integrated lithium chemicals producer.
Combining the two businesses creates a company worth A$15.7 billion, or US$10.6 billion, with a calculated combined revenue of approximately US$1.9 billion and adjusted EBITDA (EBITDA explained) of around US$1.2 billion.
The merger is expected to close by the end of the 2023 calendar year.
What are the benefits of the transasction?
Allkem said that this will immediately enhance business-critical scale and global capabilities and strengthen the ability to serve customers with a more resilient supply chain.
With Livent being a global leader in lithium processing technologies, it will enable the combined business to capture more of the lithium value chain.
Being bigger, with operations in Argentina and Canada, will allow the business to accelerate and lower the risk of developing its “strong pipeline” of attractive growth projects. It’s expecting to reach 250 kt per annum of production capacity by the 2027 calendar year.
Merging the two businesses is expected to unlock annual operating synergies of approximately US$125 million, driven mainly by asset proximity and co-development. Additional synergies are expected beyond 2027.
The financial strength of combining the two businesses is expected to show with both the balance sheet and cash flow generation.
What will Allkem shareholders get?
The exchange ratio will be determined based on each company’s estimated “relative contribution to risk-adjusted net asset value (NAV), pre-synergies”.
But, the merger is expected to boost NAV per share for both Livent and Allkem shareholders.
The transaction will result in Allkem shareholders owning approximately 56% of the new company.
This new business will be primarily listed on the New York Stock Exchange, but there will also be a listing on the ASX with CHESS Depository Interests (CDIs), which essentially work like shares.
The new company is expected to be included in the ASX 200 (ASX: XJO).
Final thoughts
Investors seem to love the move, with the Allkem share price going up so much today.
It seems like a smart merger, with stronger profits, a stronger balance sheet and a promising outlook for the company’s lithium output.
Whether today is a good price to buy could be determined by the lithium price, so I’d be happy to wait for a lower Allkem share price to invest.
