Rio Tinto (RIO, Financial) has announced a $6.7 billion acquisition offer for Arcadium Lithium (ALTM), causing the latter's stock to fall 0.8% after a prior decline of over 4%. Some Wall Street analysts view this deal as overpriced, especially given the significant decline in lithium spot prices from previous highs.
Hargreaves Lansdown analyst, Matt Britzman, stated that while this acquisition appears to be a classic buy-the-dip strategy, its valuation might come under scrutiny due to the current low lithium prices and Arcadium's negative free cash flow driven by substantial investments in new projects. To transform this acquisition into a value-added deal, Rio Tinto has considerable work to do, and it won't be an immediate turnaround.
CreditSights, a research firm, suggested that mergers and acquisitions might be a quicker path for Rio Tinto to expand their lithium business, especially considering the lower valuation of lithium assets. This strategy could be more advantageous compared to investing in high-risk greenfield projects that may or may not succeed.
This acquisition will position Rio Tinto as the world's third-largest lithium miner. The offer of $5.85 per share represents a 90% premium over Arcadium Lithium's closing price on October 4, before Rio Tinto confirmed its bid.
Jakob Stausholm, Rio Tinto's CEO, expressed that acquiring Arcadium Lithium is a significant step forward in the company's long-term strategy to build a world-class lithium business, aligning with their leading aluminum and copper operations to supply materials essential for energy transition.
This transaction marks Rio Tinto's largest since its $38 billion acquisition of Alcan in 2007. The move comes amid falling lithium prices, which have weighed down stocks like Arcadium.
