What happened
Livent (LTHM) stock was already on a roll after it announced bumper numbers earlier this month. Livent is now merging with another lithium company, and the combined entity is about to create a $10 billion company that will own one of the world's largest lithium deposit bases and position itself as a leading battery-grade lithium supplier.
The merger announcement, coupled with a rebound in lithium prices, sent shares of Livent higher this week: The lithium stock had clocked 11.7% gains at its highest point during the week as of 10 a.m. ET Friday, according to data provided by S&P Global Market Intelligence.
So what
On May 10, Livent announced that it'll merge with Allkem to create a "leading global lithium chemicals producer." After the all-stock deal closes by the end of this year, Allkem will own a 56% stake and Livent will own the remaining in the combined company, referred to as NewCo for now.
Allkem stock is listed in Australia. It is a lithium miner headquartered in Argentina, where it owns lithium brine operations. Allkem also has a mine in Australia, as well as a plant in Japan that converts lithium carbonate into battery-grade lithium hydroxide. Livent, on the other hand, makes lithium products including energy storage, battery systems, and polymers, and serves several industries like aerospace, industrials, and pharmaceuticals.
It is, therefore, a vertical merger as two companies from the same (lithium) industry but operating at different stages of the value chain will combine. So, from mining and extracting lithium to processing it into battery-grade compounds and specialty products, NewCo will do it all.
NewCo will be the third-largest lithium company in the world after Albemarle and Sociedad Quimica y Minera in terms of attributable lithium production capacity. NewCo will also be a geographically diversified company with a presence in all the major lithium-producing regions of the world, including China, Australia, South America, and Canada.
Now what
NewCo's implied market capitalization, based on the closing prices of shares of Allkem and Livent as of May 9, was $10.6 billion. The companies plan to list NewCo on the NYSE stock exchange, and each shareholder of Livent will receive 2.406 shares of NewCo for every Livent share they own.
Lithium has massive potential due to its key usage in batteries for electric vehicles. Livent is among the few publicly traded pure-play lithium stocks, and this deal looks like a step in the right direction for the company.
