Talison Lithium Deal Not in the Bag for Rockwood After AllIn August of this year, lithium market followers learned that US-based Rockwood Holdings (NYSE:ROC) had made a play for Talison Lithium (TSX:TLH), the world’s largest producer of high-purity, hard-rock lithium ore, in a C$724 million all-cash buyout. If completed, the takeover will give Rockwood, a specialty chemicals and advanced materials company, control over 55 percent of global lithium supply and make it the world’s leading lithium supplier.

The United States, once a world leader in lithium production, has been a major supporter — through Department of Energy-directed Recovery Act funds — of Rockwood’s lithium-production activities. Rockwood’s success in garnering a strong position in the global lithium market plays into the nation’s 2011 Critical Materials Strategy, which includes diversifying supply chains. Rockwood has received $28.4 million in Recovery Act investments and has used those funds to expand operations at both its Kings Mountain, North Carolina and Silver Peak, Nevada facilities.

Last-minute bid by Chinese firm

The idea that the $C6.50-a-share cash bid would stick and all Talison’s lithium holdings would soon be a part of Rockwood’s growing empire had been accepted by most in the industry — until earlier this week, when China’s Chengdu Tianqi Industry Group, which holds a 14.9-percent stake in Talison, submitted a formal bid proposal that rivals Rockwood’s offer by 65 cents per share, or C$806 million in cash. Tianqi’s subsidiary, Sichuan Tianqi Lithium Industries (SSE:002466), is the largest hard-rock lithium converter in the world, and Talison sells the company 40 percent of its chemical-grade lithium concentrate production.

Rockwood will not play bidding war

Talison’s shareholders are set to vote on Rockwood’s proposal on November 29, and Seifi Ghasemi, Rockwood’s chairman and CEO, has voiced confidence that they will accept the $C6.50-a-share bid.

Rockwood’s legally binding implementation agreement with Talison states that if the Talison board formally declares another offer superior to its bid, Rockwood will then have five business days to come up with a better offer — in effect, a bidding war could commence between Rockwood and Tianqi. However, Rockwood recently declared that it has “no intention of engaging in a bidding process for the acquisition of Talison,” declaring its $C6.50 a share offer “best and final.” If Talison’s board finds Tianqi’s bid to be just as favorable as Rockwood’s, the board is legally obligated under the original agreement to recommend that shareholders accept Rockwood’s offer. If Talison declares the Tianqi bid superior, it must pay Rockwood a $C7 million break fee.

But, as Bryan Frith points out in a recent article for The Australian, Rockwood’s takeover of Talison is now not quite as secure as most in the industry had believed. Tianqi has in recent days been able to acquire additional shares in Talison through conditional purchase agreements, giving it a nearly 20-percent stake. Whether or not Talison’s lithium production will be controlled by a US- or China-based firm now lies in the hands of Talison’s major shareholder, Resource Capital Fund (RCF), which holds a 36.8-percent stake in the Australia-based company. Even if the Talison board supports Rockwood’s bid, RCF may vote against it in favor of the Tianqi bid, meaning Rockwood will not be able to amass the necessary 75 percent of shareholders by value needed to win its bid.

 

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company or commodity mentioned in this article.