Shares of Arcadium Lithium jumped intraday on Wednesday after the company agreed to be acquired by Rio Tinto in a $6.7 billion cash deal. A subsidiary of Rio Tinto will buy the lithium chemicals producer for $5.85 per share, a 90% premium to Arcadium's stock price on Oct. 4. As a result, Arcadium's shares soared 31% in Wednesday trade. 'We are confident that this is a compelling cash offer that reflects a full and fair long-term value for our business and de-risks our shareholders' exposure to the execution of our development portfolio and market volatility,' Arcadium Chief Executive Paul Graves said in a statement. At an investor day in September, Arcadium indicated that it was balancing growth against funding requirements and delaying some projects, according to RBC Capital Markets in a Monday note.
Arcadium and Rio Tinto have significant alignment on the future direction, and an acquisition could 'unconstrain' Arcadium's production growth, RBC stated at the time. With lithium prices expected to remain depressed over the next few years, RBC was modeling Arcadium's 2025 earnings before interest, taxes, depreciation, and amortization at $300 million, before growing to $1.1 billion by 2028 to 2029 due to production growth. 'Arguably, given Rio's balance sheet (and depending on the market), Rio could pull forward production growth from Sal de Vida stage 2, Fenix stage 2, Galaxy stage 2, and Cauchari,' the brokerage noted.
'We believe the most significant upside/optionality resides with the Argentinian brine operation given its large resource base.' The deal will give Arcadium the 'opportunity to accelerate and expand our strategy,' Graves emphasized on Wednesday. The combined assets of both companies will represent the world's largest lithium resource base, as they jointly announced. The transaction is expected to close in mid-2025, subject to regulatory and Arcadium shareholder approvals. 'Acquiring Arcadium Lithium is a significant step forward in Rio Tinto's long-term strategy, creating a world-class lithium business alongside our leading aluminium and copper operations to supply materials needed for the energy transition,' stated Rio Tinto CEO Jakob Stausholm..