Gina Rinehart has demonstrated her proficiency as an M&A strategist. With skillful application of the nation's takeover regulations, Australia's most wealthy person has thwarted Albemarle's A$6.6 billion ($4.2 billion) attempt to acquire lithium company Liontown Resources. Now she needs to provide evidence that the action was more than just an attempt to gain control.
The biggest manufacturer of the essential component for batteries in the world has been pursuing its Australian rival for a year, and with its fourth bid last month, it finally won the board's tentative support. The offer provided an almost 100% premium over Liontown's undisturbed price at A$3 per share. It's understandable that Kent Masters' Albemarle deemed that offer to be "best and final." But then the catch appeared. Under Australian law, such a declaration also forbids the buyer from increasing the price until there is a superior offer from a third party, while at the same time conveying to a seller playing hardball the fact that there won't be any more coming.
Rinehart took advantage of this and quickly amassed 19.9% ownership. She would only need a small number of voting stakeholders to join her or a few absentee votes to stop the deal because Albemarle's offer needs to be approved by 75% of voting stakeholders. Additionally, her share acquisitions did not qualify as a superior offer because she did not offer to pay more than the A$3 per share Albemarle placed on the table. Masters and his colleagues were effectively confined after being unable to increase the offer further.
The issue is that Albemarle's ownership would have resolved a few urgent problems. First, Liontown could have benefited from the $19 billion American miner's vast knowledge in manufacturing lithium. Second, Albemarle's larger financial resources would have assisted the Australian rival in controlling growing costs, which have more than doubled to about A$1 billion at the company's main Kathleen Valley project in Western Australia. It is now expected that the Australian manufacturer of battery materials will go back to a pre-takeover strategy of borrowing a minimum of A$450 million to pay for initial expenses. Lithium costs have also nearly halved this year.
Rinehart might help with Liontown's cash requirements, with an estimated A$37 billion worth. She has proposed lowering the risks associated with Liontown's project execution through her owned and operated business, Hancock Prospecting. It is primarily a mining company for iron ore and coal, though, and just recently entered the lithium market through a joint venture.
Without additional information about her ambitions, Liontown's other investors will have little choice but to sell their shares in the company as a result of escalating costs, falling lithium prices, a dead contract, and a tycoon's blocking stake.