Lithium Boom Drives Albemarle $6.2 Billion Rockwood Deal

The race is on to control the world’s biggest source of lithium, the lightweight metal used in everything from lubricants and medicines to rechargeable batteries for iPads and electric cars.

Albemarle Corp. agreed today to pay $6.2 billion in cash and stock for Princeton, New Jersey-based Rockwood Holdings Inc., the largest lithium producer, the industry’s biggest deal to date.

Rockwood is the leader among four companies that control about 90 percent of the market for lithium. Consumption of the metal doubled in the decade through 2012, driven by wider use of batteries in electronics and power tools. Baton Rouge, Louisiana-based Albemarle said demand is now increasing as much as three times faster than the overall economy.

“Growth in lithium will come from the continued proliferation of electronic devices as well as energy storage,” Albemarle Chief Executive Officer Luke Kissam told analysts on a conference call today.

Potential from the automotive industry is “especially attractive,” with a sharp increase in demand expected around 2017.

Other lithium producers are equally bullish. The world market may double in a decade with demand growing at 7 to 10 percent annually, Chile’s Soc. Quimica & Minera de Chile SA, known as SQM, said in April.

Tesla Gigafactory

Tesla Motors Inc. the electric vehicle maker led by billionaire Elon Musk, plans a battery “gigafactory” that may consume as much as 17 percent of current lithium output, Goldman Sachs Group Inc. said in February. The $5 billion plant will double global production of lithium-ion batteries using raw materials sourced in North America, according to Tesla.

Lithium will remain a fast-growing product even without widespread demand for electric automobiles, Kissam said.

“The growth of this business isn’t dependent on an exponential growth in electric vehicles,” Kissam said in a phone interview today.

Most of Rockwood’s $479 million of lithium sales last year were to pharmaceutical and agriculture customers, followed by chemical and plastics makers. While sales to battery makers are growing rapidly, they account for only 12 percent of the company’s lithium revenue.

Fully electric vehicles contain 44 pounds of lithium carbonate in their battery packs, compared with just one ounce in a notebook computer, Rockwood said in a March presentation. Rapid adoption of electric vehicles could double lithium sales for batteries between 2013 and 2017, then double them again by the end of the decade, according to the presentation.

U.S. Source

Rockwood produces lithium by evaporating brine from salt ponds in Chile and Nevada, the only U.S. source of the metal. It’s December agreement to buy a 49 percent stake in Talison Lithium Ltd. gives it access to a lithium rock mine in Western Australia.

The purchase of Rockwood should hasten Albemarle’s effort to start up a second U.S. source of lithium, Kissam said. Albemarle has been working since 2011 on cost effective ways to extract as much as 20,000 tons of lithium a year from its bromine salt ponds in Magnolia, Arkansas.

“To have the world’s leader working with your team certainly will expedite that process,” Kissam said in the interview.

‘Pure-Play Lithium’

Rockwood, under former CEO Seifi Ghasemi, sold assets that make titanium-dioxide pigment, clay-based additives and ceramics to focus the company on lithium as well as surface treatments used to clean metal and prevent corrosion. Ghasemi stepped down last month to lead Air Products & Chemicals Inc.

“As we watched them continue to divest those businesses and become a pure-play lithium and surface-treatment company, it became increasingly interesting,” Kissam said in the interview. “The talks heated up over the last month or so.”

The deal is the latest example of consolidation in the highly concentrated lithium industry. It outpaces Chengdu Tianqi Industry Group Co.’s C$673 million ($626 million) purchase last year of Australia’s Talison, owner of the world’s largest open-pit lithium mine.

After Chengdu Tianqi outbid Rockwood to buy Talison, it agreed to sell a stake in the mine to Rockwood.

Talison, Rockwood, Philadelphia-based FMC Corp. and SQM control about 90 percent of worldwide lithium production, according to Jefferies & Co.

Deal Premium

Albemarle agreed to pay $50.65 in cash and 0.4803 of a share for each Rockwood share. That values Rockwood at $85.53 a share, or 13 percent more than yesterday’s closing price, the companies said in a statement.

Bank of America Corp. is providing financing for the cash portion of the deal, which is expected to close in the first quarter of 2015.

Albemarle investors will own 70 percent of the combined company and Rockwood holders the rest. Albemarle’s Kissam will be CEO.

The deal isn’t contingent on the completion of Huntsman Corp.’s planned acquisition of Rockwood’s titanium-dioxide business, Kissam told analysts on a conference call.

Today’s deal is the largest takeover of a diversified chemicals company since Solvay SA bought Rhodia SA in 2011, according to data compiled by Bloomberg. It will add to Albemarle’s cash earnings per share in the first year, according to the statement. Albemarle expects about $100 million in cost savings by 2016.

Rockwood rose 9.8 percent to $83.14 at the close in New York while Albemarle slid 2.6 percent to $70.03.

Bank of America is Albemarle’s financial adviser while its legal advisers are Shearman & Sterling LLP, Troutman Sanders LLP and Kelley Drye & Warren LLP. Lazard Ltd. and Citigroup Inc. are Rockwood’s financial advisers and its legal adviser is Simpson Thacher & Bartlett LLP.

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