Tycoon’s Lithium Grab Leaves Investors Hanging

MELBOURNE, Oct 16 (Reuters Breakingviews) – Gina Rinehart has proven that she’s a good M&A tactician. Australia’s richest person has stifled Albemarle’s A$6.6 billion ($4.2 billion) pursuit of lithium producer Liontown Resources  with deft use of the country’s takeover rules. Now she needs to show why the move was more than simple power-grabbing.

The world’s largest producer of the key battery material has been pursuing its rival Down Under for a year, finally winning the tentative support of its target’s board last month with its fourth bid. At A$3 a share, the offer represented a near-100% premium to Liontown’s undisturbed price. No wonder Albemarle, run by Kent Masters, called that bid “best and final”. But then came the catch. While signaling to a seller playing hardball that there’s no more coming, under Aussie law such a declaration also prevents the buyer from upping the price unless there’s a better offer from a third party.

Rinehart used that to her advantage, rapidly building a stake of 19.9%. With Albemarle’s offer requiring approval from 75% of voting shareholders, she would only need a handful of them to join her, or a few no-shows at the ballot box, to block the deal. And because she never paid more than the A$3 a share Albemarle put on the table, her share purchases did not count as a superior offer. Unable to raise the offer further, Masters and his team were effectively boxed in.

Trouble is, ownership by Albemarle would have solved a couple of pressing problems. First, Liontown would have benefited from the $19 billion U.S. miner’s extensive experience at producing lithium. Second, Albemarle’s deeper pockets would have helped the Aussie peer manage rising costs, which have more than doubled to almost A$1 billion at its flagship Kathleen Valley project in Western Australia. It’s now likely the Australian battery material producer will return to a pre-takeover plan to borrow at least A$450 million to fund initial outlays. Meanwhile, prices of lithium have more than halved this year.

With A$37 billion of estimated wealth, Rinehart could help with Liontown’s cash needs. Hancock Prospecting, the company she owns and manages, has floated the idea of helping reduce Liontown’s project execution risks. It is, though, predominantly an iron ore and coal mining firm and only got into lithium, via a joint venture, a couple of years ago.

Absent more details about her plans, the combination of rising costs, lower lithium prices, a dead deal and a tycoon’s blocking stake means Liontown’s other investors have little reason to do anything other than send the stock plummeting.

U.S.-based lithium producer Albemarle on Oct. 16 said it has abandoned its A$6.6 billion ($4.2 billion) offer for smaller Australian rival Liontown Resources, citing “growing complexities associated with the proposed transaction” as a reason.

Albemarle’s interest in the company was made public in March, with Liontown’s board giving tentative backing to an improved offer of A$3 a share on Sept. 4.

Since then Hancock Prospecting, owned by Australia’s richest woman Gina Rinehart, revealed that it had been buying up shares in Liontown and by Oct. 11 held 19.9% of the company. Hancock makes most of its money mining for iron ore. The firm said that in building its stake it never paid more than A$3 per share, the same price as Albemarle’s takeover offer.