Rio Tinto makes approach for $3.3bn Arcadium Lithium

Rio said there was no certainty that any transaction will be agreed with the US miner, in a statement on Monday. Arcadium, which is valued at around $3.3 billion, confirmed it had been approached in a separate statement. The companies didn’t provide any financial details.

Lithium stocks have languished since the start of the year after prices of the key battery metal plummeted amid an oversupply and lull in demand from electric vehicle makers. Arcadium has underperformed its peers, which has been fueling speculation of a takeover for some months.

Australian-listed depository receipts for Arcadium jumped as much as 50% in early trading, the most since listing in December. The move is likely exacerbated by thin trading volumes, with Sydney closed for a holiday on Monday.

Citigroup Inc. suggested Rio should buy Arcadium as early as July. The miner was trading “well below replacement value” and was cheaper to acquire than build a new portfolio of quality lithium assets, analyst Paul Taggart wrote at the time. 

“For companies looking for scale, first quartile costs (brine) and chemical expertise positioned for IRA tailwinds, buying Arcadium could be more economical than trying to discover and develop chemicals capability,” Taggart said. 

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Any deal would require Rio to win over Arcadium board and shareholder support. 

A potential acquisition would be highly opportunistic and “require a significant premium to realise fair valuation for the business,” Tim Riordan and Michael Teran, portfolio managers at Blackwattle Investment Partners, wrote in a letter to Arcadium’s board on Saturday. The Sydney-based firm is an investor in Arcadium, according to the letter.

“The timing of this potential sale could not be at a more value destructive period for shareholders,” Riordan and Teran wrote, adding that the global lithium market appears to have bottomed and any sale price should be near $8-billion.