Wesfarmers Limited pulls the lever to invest in the highly-lucrative lithium market through a proposal to acquire Kidman Resources, a partner in Mt Holland lithium project.
On Thursday, Wesfarmers Limited (ASX: WES) announced that it has entered into a Process & Exclusivity Deed with Kidman Resources (ASX: KDR) to acquire all the shares of Kidman at $1.90 cash per share, taking the transaction value to ~$776 million.
Under the Process and Exclusivity Deed, Kidman has allowed Wesfarmers to carry-out an exclusive confirmatory due diligence within the period of up to four weeks. Kidman is a 50% owner of the very popular Mt Holland lithium project that includes large-scale, long-life & high-grade lithium deposit in Western Australia.
Wesfarmers’ interest in the lithium industry is underpinned by the global uptake of electric vehicles over the medium to long term which presents opportunities to deploy capital & achieve attractive returns.
Wesfarmers Managing Director Rob Scott stated that the takeover of ASX-listed Kidman Resources provides an opportunity for Wesfarmers to develop a large-scale and high-grade lithium hydroxide project in Western Australia. It also creates a unique partnership with Chile-based Sociedad Quimica y Minera (SQM) which is a Kidman’s joint venture partner and a global leader in the lithium industry.
The cash offer of $1.90 per Kidman share represents an attractive premium of 47% premium to the last closing price on 1 May 2019 and a 44% premium to the 60-day VWAP to 1 May 2019.
Proposal to be effected via Scheme Implementation Agreement (SIA) & is supported by the Kidman Board, key management & a number of Kidman’s major shareholders, who collectively own ~17% of outstanding shares. Moreover, the proposal is conditional upon the completion of confirmatory due diligence and shareholders’ and Board approvals subject to no superior proposal & the independent expert being concluding that the scheme is in the best interests of Kidman shareholders.
The management believes that Wesfarmers proposal is in line with its objective to deploy capital in high-value areas where the company could deliver attractive returns to the company’s shareholders.
The rationale of the transaction also revolves around the Opportunity to leverage Wesfarmers’ expertise & capabilities in chemical processing & long track record of successfully developing processing plants, while generating strong returns on capital over time.
Lithium hydroxide is expected to play an increasingly important role in the market, as manufacturers shift to production of longer-range batteries for electric vehicles. The production of battery-grade lithium hydroxide is an attractive part of the electric vehicle value chain.
Kidman’s Mt Holland lithium project comprises the development of the asset through the construction of a mine, concentrator & refinery and a lithium hydroxide refinery in Kwinana. The construction work aims to produce ~45,000 tonnes of lithium hydroxide at battery grade standards annually with first production estimated by Fiscal 2022
WES last traded at $35.650 with a price to earnings multiple of 7.330x and a market capitalisation of $40.58 billion as at 2 May 2019.
KDR stock price shot up by 44.961% to close at $1.870 on 2 May 2019.
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