After reporting monumental sales of lithium chemicals last year, Albemarle has offered to buy the lithium miner Liontown Resources for $3.7 billion. But Liontown rejected the deal, arguing that it undervalued a mine the company is developing in Western Australia.
Albemarle, the largest US lithium firm, is offering a premium of about 63% over Liontown’s share price before the overture became public. In announcing the rejection, Liontown executives also revealed that they refused lower offers from Albemarle in October 2022 and early March. Liontown’s share price increased by about 65% after the company announced turning down the latest offer. Albemarle has built up a 4.3% stake in Liontown’s shares.
The US firm’s bid for Liontown comes as the lithium industry is trying to boost production and meet the rapidly growing demand from companies making lithium-ion batteries for electric cars. This demand pushed lithium prices to stratospheric levels by the end of 2022.
But prices have fallen since then, depressing the share prices of many lithium companies. At the same time, the cost of building a lithium mine has gone up, according to Andy Leyland, founder of the battery supply chain consultancy SC Insights. That makes buying an existing or under-construction mine more attractive than building a new one.
“It’s changed the buy-versus-build dynamic,” Leyland says. “It’s going to be cheaper if I buy one, particularly one that’s already in construction.”
Howard Klein, cofounder of the lithium advisory firm RK Equity, says Liontown’s mine is a tempting acquisition target because it’s large and close to starting production. He says Liontown’s public rejection of Albemarle’s proposal may be a signal that it is open to higher offers, from Albemarle or another player.
Despite the slumping price of lithium, Klein says Albemarle’s offer may be the beginning of a boom in M&A activity in the lithium sector, especially since the largest firms are flush with cash. “The biggest company in the industry sees a significant shortage, and they’re on the hunt,” Klein says. “Who are the next Liontowns?”
The story was updated on March 30, 2023, to correct the size of Albemarle's stake in Liontown Resources. Liontown originally reported that Albemarle had a 2.2% stake but later issued a press release noting that the correct number is 4.3%.