Gina Rinehart has demonstrated her strategic prowess in mergers and acquisitions. Australia’s wealthiest individual has thwarted Albemarle’s $4.2 billion takeover bid for lithium producer Liontown Resources through adept utilization of the nation’s takeover regulations. However, Rinehart now must justify that her actions were more than a mere power play.
The world’s largest producer of essential battery materials has been pursuing its Australian rival for a year. Last month, it finally gained the tentative approval of Liontown Resources’ board with its fourth bid of AUD 3 per share, a nearly 100% premium over Liontown’s unaffected share price. Understandably, Albemarle labeled this bid as its “best and final.” But there was a catch. Under Australian law, when a bidder declares it’s their best and final offer, this not only signals to a stubborn seller that there won’t be a higher bid, but it also prevents the bidder from raising the price unless a third party makes a superior offer.
Rinehart used this rule to her advantage, quickly amassing a 19.9% stake. With Albemarle’s offer requiring approval from 75% of voting shareholders, she would only need a few to side with her or a few no-shows at the ballot box to block the deal. As she never paid more than AUD 3 per share, her share purchases didn’t qualify as a superior offer. Unable to increase the offer, Kent Masters and his team found themselves in a tough spot.
However, Albemarle’s ownership would have addressed several pressing issues. Firstly, Liontown would have benefited from the extensive experience of the $19 billion U.S. mining giant in lithium production. Secondly, Albemarle’s deep pockets could have helped the Australian peer cope with rising costs, which have doubled to almost AUD 1 billion at its flagship Kathleen Valley project in Western Australia. It now seems likely that the Australian battery materials producer will revert to its pre-takeover plan of borrowing at least AUD 450 million to fund initial expenses. Meanwhile, lithium prices have dropped by more than half this year.
With an estimated wealth of AUD 37 billion, Rinehart could assist with Liontown’s financial needs. Hancock Prospecting, her company, has suggested helping mitigate Liontown’s project execution risks. However, Hancock is primarily involved in iron ore and coal mining and only ventured into lithium through a joint venture a couple of years ago.
Without further details about her intentions, the combination of rising costs, lower lithium prices, a failed deal, and a tycoon’s blocking stake provide little incentive for other Liontown investors, and their reaction has sent the stock plummeting.
U.S.-based lithium producer Albemarle announced on October 16 that it had abandoned its AUD 6.6 billion ($4.2 billion) offer for its smaller Australian counterpart, Liontown Resources, citing “growing complexities associated with the proposed transaction” as the reason.
Albemarle’s interest in the company was made public in March, with Liontown’s board giving tentative backing to an improved offer of AUD 3 per share on September 4. Since then, Hancock Prospecting, owned by Australia’s wealthiest woman, Gina Rinehart, revealed that it had been buying shares in Liontown. By October 11, Hancock held 19.9% of the company. Hancock stated that it never paid more than AUD 3 per share when building its stake, the same price as Albemarle’s takeover offer.