Arcadium Lithium (ALTM), known for its extensive lithium business, has grabbed attention, with its stock shooting up over 120% in the past few weeks. In a monumental turn of events, Rio Tinto (RIO) and Arcadium Lithium have announced a definitive agreement for Rio Tinto to acquire Arcadium in an all-cash transaction valued at approximately $6.7 billion. This acquisition will strengthen Rio Tinto’s lithium business, positioning it to play a key role in the global energy transition. Arcadium Lithium will now benefit from Rio Tinto’s financial strength and development expertise.
Further, the transaction is expected to propel EBITDA and free cash flow in the long run. The share price has jumped up close to the offer of $5.85 per share, suggesting little upside for investors at this point.
Arcadium Joins Forces with Rio
Arcadium Lithium is a leading global producer of lithium chemical products that span industrial applications from electric vehicles to aerospace. The company has comprehensive operations in six different countries and currently produces 75,000 tonnes of lithium carbonate equivalent annually, with plans to more than double this capacity by 2028.
The company has announced it is set to be acquired by multinational mining corporation Rio Tinto in an all-cash transaction valued at approximately $6.7 billion. The acquisition was pegged at a premium of 90% to Arcadium’s closing price as of October 4, 2024, and is set to establish Rio Tinto as a global leader in energy transition commodities, with Arcadium’s lithium business complementing its aluminum, copper, and iron ore operations.
The acquisition has been unanimously approved by the Boards of Rio Tinto and Arcadium and is projected to close by mid-2025. Arcadium’s shareholders will receive further information in an upcoming notice of meeting and proxy statement. The deal, subject to approval from Arcadium’s shareholders and the Royal Court of Jersey, is expected to proceed without antitrust complications as Rio Tinto does not currently produce lithium.
What Makes Arcadium an Attractive Acquisition?
Arcadium Lithium recently shared its second-quarter results for the year 2024. The company reported an earnings per share (EPS) of 5 cents, matching analyst expectations. However, its reported revenue was $254.50 million, which fell short of analyst estimates of $277.78 million. The GAAP net income was $85.7 million, or 7 cents per diluted share. Adjusted EBITDA was $99.1 million.
The Q2 average pricing was $17,200 per product metric ton for combined lithium hydroxide and carbonate volumes. Despite an increase in total volumes compared to Q1, lower spodumene sales and a decline in market prices for lithium chemicals led to a dip in revenue. Rio Tinto’s acquisition aims to realize Arcadium’s full potential and bolster its presence in the high-growth lithium market as prices rebound.
Analysts’ Reactions to the Announcement
Analysts have been cautiously optimistic about the announcement of Rio Tinto’s acquisition offer.
A few financial firms such as Scotiabank has increased its price target on Arcadium from $4 to $5.85, maintaining an Outperform rating. KeyBanc and BMO Capital have shared similar views, with BMO Capital also increasing its price target to $5.85 and keeping a Market Perform rating. Mizuho also raised its price target for Arcadium to $5.85 from $4.30 and kept a Neutral rating.
However, several financial institutions, including HSBC, Macquarie, and TD Cowen, have downgraded Arcadium Lithium to Hold or Neutral from Buy or Outperform with a price target of $5.85.
Overall, Arcadium Lithium is rated a Hold, based on eight analysts’ recent recommendations. The average price target is $4.89, which represents a potential decline of 11.57% from current levels.
Final Thoughts on ALTM
Arcadium Lithium’s proposed acquisition by Rio Tinto looks to merge Rio Tinto’s broad developmental capabilities with Arcadium Lithium’s high-yielding lithium products, promising a brighter EBITDA and free cash flow forecast. It’s an exciting phase for current stakeholders as Arcadium Lithium gears up to ride the high tide under the Rio Tinto umbrella.
At the same time, Rio Tinto steps into the limelight as a global leader in energy transition commodities. Analysts have responded quickly to the event, with Arcadium Lithium’s shares now rated as a Hold for existing investors. However, the current price leaves little attraction for new investors.
