Monsters of Rock: Allkem shareholders back Livent merger in bid to create lithium growth story

Allkem shareholders have voted up Allkem’s planned merger with America’s Livent in a meeting in Perth today
The deal is a bid to create what could become the world’s third largest lithium producer from 2027
Comes after a recent rebound in share prices after falling commodity prices have hit lithium stocks hard in the second half of 2023

After months of agitations, including high-profile complaints from large institutional investors, the backing of proxies has secured support from Australian shareholders for Allkem’s (ASX:AKE) mega lithium merger with America’s Livent.

The deal would see the company renamed Arcadium Lithium, pairing brine production assets in Argentina with Allkem’s Mt Cattlin spodumene mine in WA and the companies’ theoretically complementary development assets in Canada’s James Bay lithium district.

A scheme meeting today at Crown Perth brought few surprises with 72.07% of Allkem shareholder present and voting and 89.27% of votes cast in person or by proxy supporting the merger.

Outgoing Allkem CEO Martin Perez de Solay, who will step aside in the merger for Livent’s Paul Graves, said the combined company would have “the scale and expertise to meet the rapidly growing demand for lithium chemical products and the product flexibility required by customers while remaining committed to the delivery and execution of a significant growth pipeline.”

It promises to be, if lithium pricing, regulatory approvals and technical aspects allow, the third biggest lithium producer in the world behind Albemarle and SQM.

There had been concerns heading into the vote that Allkem shareholders would be dudded by getting just 56% of the combined entity, which will be headquartered in Ireland and primarily listed in New York, despite bringing the bulk of the production.

Independent expert Kroll, which said the “merger of equals” was fair and reasonable, placed an underlying equity value of $5.337-6.446b on Allkem and $4.454-4.981b on Livent.

Are lithium prices finding a floor?

Both companies have fallen around 35% since the deal was announced over six months ago.

That’s basically down to a slide in lithium prices, which have come off faster than most analysts predicted as supply has outpaced demand from EV makers in China despite EV sales penetration lifting strongly in the key market.

Responding to investors at the scheme vote today, Allkem chairman and former Woodside (ASX:WDS) boss Peter Coleman said it looked like support was coming now for lithium prices.

The market has turned suddenly optimistic in recent weeks after a months long sell off, with Allkem shares 18% higher over the last month and most of that in the past five trading days.

“You’ve seen the markets continue to change, particularly with respect to lithium pricing, and there’s been other M&A activities in the marketplace that we’ve continued to monitor very closely,” he said.

“And I’m pleased today to be standing in front of you and saying it looks like we’ve found some support for lithium pricing, and it’s been good to see the stock price start to move in a positive direction in the last week or so.”

Allkem expects to produce 22,000-26,000t of lithium carbonate and 210,000-230,000t of spodumene in FY24, but says a strong growth pipeline could see the combined Arcadium grow production to around 248,000t lithium carbonate equivalent from 2027, 163,000t of that from assets held currently by Allkem.

The deal comes amid a flurry of merger and acquisition activity in lithium, including SQM and Gina Rinehart’s Hancock Prospecting deciding to combine for a $3.70 a share bid for Azure Minerals (ASX:AZS) today.

READ: Ground Breakers: Azure lithium takeover alive again as SQM and Hancock join forces

The materials sector lifted 0.74% after a solid trading day for iron ore producers. Liontown was the big winner, rising more than 11% to $1.63 after its top shareholder Hancock’s Azure bid rose hopes of more M&A after Rinehart’s intervention scuppered a $6.6 billion takeover from Albemarle earlier this year.