Three times isn't a charm for top lithium producer Albemarle (NYSE: ALB) as Australia's Liontown Resources (ASX: LTR) has rejected its latest offer valuing the lithium developer at A$5.5 billion (US$3.7 billion).
The news sent its Sydney-listed shares soaring 68.5% to a fresh 12-month high of A$2.57 by market close.
Liontown disclosed in an exchange filing that Albemarle had offered A$2.50 per share, reflecting a 63.9% premium to the prior close.
At least one analyst expects Albemarle to return to the table with a sweetened bid after Liontown previously rejected Albemarle's offers of A$2.35 per share and A$2.20 per share in March and October 2022, respectively.
Liontown says the most recent proposal does not reflect the value of its pre-production Kathleen Valley lithium project in Western Australia, or the project's growth. It's also concerned the offer might undercut the positive near-term outlook for existing and new producers while the significant synergies available to Albemarle should they acquire the company does not reflect fully in the offer price.
"[The board] unanimously determined that [the proposal] substantially undervalues Liontown, and therefore is not in the best interests of shareholders," the company said.
Lithium demand is expected to soar in coming years as suppliers rush to meet heaving demand from automakers switching from manufacturing gas-powered cars to electric vehicles.
Benchmark lithium prices have vaulted more than six-fold over the past two years before turning down in recent months as electric vehicle sales in the top market, China, dropped.
Albemarle stated in its proposal that it is "prepared to engage immediately in discussions with Liontown to work toward a mutually acceptable agreement." Given the recent lithium price pullback, Canaccord Genuity mining analyst Reg Spencer agrees the offer might be opportunistic on Albemarle's behalf. "Albemarle's recent on-market purchases of up to 5% of Liontown stock suggest it is committed to pursuing a potential transaction and may return with a higher bid," wrote Spencer in a note to clients.
Liontown, with a market capitalization of A$5.6 billion (US$3.8 billion), said RT Lithium, a subsidiary of Albemarle, had accumulated a stake through on-market purchases. RT Lithium now holds nearly 2.2% in Liontown.
The analyst further suggests the confidence with which Liontown management has rejected the offer suggested it might be close to bridging the projected A$300-million-plus funding gap (including working capital) for Kathleen Valley.
"Rejecting the Albemarle offer likely implies a solution to the capital expenditure-working capital shortfall is close to being resolved," Spencer said. "Liontown has numerous options, including equity (less dilutive now given share price move), debt, and potential offtake prepay on uncommitted production."
Liontown controls two significant lithium deposits in Western Australia, including its flagship Kathleen Valley project. According to the company's public disclosures, the project is one of the world's largest and highest-grade hard rock lithium deposits.
The first production at the project is expected in the second quarter of 2024.
Liontown has signed supply agreements with Ford Motor Co, Tesla and the battery unit of South Korea's LG Chem.
Albemarle shares in New York last traded at US$218.24, giving it a market capitalization of US$25.6 billion.