(Reuters) -Lithium companies Allkem Ltd and Livent Corp said on Wednesday they will combine in an all-stock $10.6 billion deal to create the world's third-largest producer of the metal used to make electric vehicle batteries.
Shares of Livent were up about 5.4% to $25.53 in late morning trading on the New York Stock Exchange. Allkem's shares closed up nearly 1% on the Sydney Stock Exchange.
Combining U.S.-based Livent and Australia-based Allkem creates an industry powerhouse on four continents that executives hope will bring more heft and skills needed to boost supply of the metal to an increasingly hungry automotive sector, including Tesla Inc, General Motors Co and BMW.
"To develop more lithium projects, you need to be big enough to finance, you need access to resources and you need technical expertise," Livent CEO Paul Graves said in an interview. "Combining the two companies helps us with all of those areas."
Allkem and Livent operate lithium brine facilities in Argentina that are roughly 10 km (6.2 miles) apart, and in the Canadian province of Quebec they are both building hard rock lithium mines less than 100 km (62 miles) apart. Combining the companies should help those projects develop faster, Graves said.
Allkem also produces hard rock lithium in Australia, has a chemical conversion facility in Japan, and is an expert in the nascent field of direct lithium extraction (DLE), which is increasingly seen as a tantalizing prospect to produce more of the battery metal faster than traditional mining methods.
"We need all of these skills," Graves said, adding that the increased size will help the new company self-finance operations. "Together we have broader capabilities."
ARGENTINA FOCUS
Under the deal, which is set to close by the end of 2023, Allkem shareholders will get one share in the combined entity for each of their shares and the company will ultimately own 56% of the new firm. Livent shareholders will get 2.406 shares in the new firm for each existing share.
Graves will be CEO of the new company, while Allkem's Peter Coleman will be its chairman. The company, which has yet to be named, will be listed on the NYSE and headquartered somewhere in the United States.
Allkem CEO Martin Perez de Solay will become an advisor to the new company.
Analysts said the new company's combination of mining and processing assets across the globe are strong growth harbingers. "It will be one of the largest and most resilient lithium producers globally by the end of the decade," said Jordan Roberts of Fastmarkets, a consultancy.
Graves said the new company's growth prospects in Argentina especially are strong, despite the South American country's macroeconomic woes. He also called on the United States to sign a free trade deal with Argentina, which would make Argentine lithium compliant with EV tax credits that are at the core of the Biden administration's 2022 Inflation Reduction Act.
"I can't understate how important it is for the U.S. plan to include Argentina's lithium," Graves said. "We hope and expect that there will be progress on the U.S. side to make that happen."
The combination would create the world's third-largest lithium producer by volume, when all growth projects are factored in, after U.S.-based Albemarle Corp and Chile's SQM. China's Ganfeng Lithium Group and Tianqi Lithium Corp are also major rivals.
Analysts said Allkem's recent stock price had not reflected the company's growth potential, potentially leaving it vulnerable. "By doing a deal at this time, it might provide some protection from an opportunistic bid," said Reg Spencer, an analyst at Canaccord who visited Allkem's operations this week.
Livent was formed in 2018 when FMC Corp spun off its lithium division. Allkem was formed in 2021 by the combination of Galaxy Resources and Orocobre.
($1 = 1.4743 Australian dollars)
(Reporting by Ernest Scheyder, Melanie Burton, Scott Murdoch, Harish Sridharan, Rishav Chatterjee; Editing by Sonia Cheema, Janane Venkatraman, Devika Syamnath, Sharon Singleton and Paul Simao)