Arcadium Lithium shares surge 40% on Rio Tinto deal
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More news: Arcadium Lithium shares rocketed on the ASX after the company emerged from a trading halt this morning which followed confirmation of its blockbuster acquisition by Rio Tinto.
Arcadium shares were up 39% to $8.22 by 11:30am AEDT. Rio shares added 0.6% at $118.99.
Arcadium Lithium pauses trading after confirming Rio deal
The news: Arcadium Lithium has paused trading on the ASX after confirming its $9.9 billion acquisition by Rio Tinto on Wednesday.
The numbers: Trading of Arcadium shares was paused before market open, pending a further announcement, while Rio shares were up 0.5% to $118.89 by 10:30am AEDT.
Overnight, Arcadium shares rose 31% in New York to USD5.55 ($8.26) after the deal was announced. Rio shares edged up in London but closed 0.5% lower in New York.
Morgan Stanley analysts said the deal value implies an enterprise value to EBITDA ratio of around 15x in 2026, falling to around 7.2x in 2028 should Arcadium achieve its EBITDA growth target of USD1.3 billion.
RBC Capital Markets lifted its Arcadium price target 44% to Rio's offer price of USD5.85, and reduced Rio's price target 2% to $125.
The context: Morgan Stanley analysts said that despite Rio's offer value standing above the upper end of the Arcadium valuation range reported over the weekend, the deal valuation would be accretive to Rio's net income by 2027 and free cash flow to equity by 2028.
RBC analyst Kaan Peker said the offer is "compelling" for Arcadium shareholders and represents a "significant premium" to RBC's undisturbed price of $4.70 per share.
Peker noted that there is strategic rationale in consolidating Rio's and Arcadium's Canadian and Argentinean assets and technology, which has resulted in the premium.
E&P analyst Adam Martin noted that the deal highlights the medium-term fundamentals of the lithium market.
What they said: "The lithium market remains relatively small with few players, meaning the likelihood of additional M&A could increase," said Martin.
"In the longer-term, there is risk that Rio's expansion into lithium could keep markets well supplied, lowering long-term price estimates," he said. "We think this will take a number of years to play out and will depend on the rate of demand growth."
The sources: RBC Capital Markets research, E&P research, Morgan Stanley research, ASX announcement
