By Clara Denina and Melanie Burton
LONDON/MELBOURNE (Reuters) -Rio Tinto said on Wednesday it would buy U.S. based Arcadium Lithium for $6.7 billion in deal that would catapult it to become one of the world's largest miners of the metal used in electric vehicles and mobile devices.
Rio, already the world's largest producer of iron ore, is transforming itself into a processor of high end, low carbon raw materials essential for the energy transition.
It said it would pay $5.85 per share in cash for the lithium miner, an almost 90% premium to Arcadium's closing price of $3.08 per share on Oct. 3, the day before Reuters exclusively reported on a potential deal.
Rio's London-listed shares were down 0.5% by 0923 GMT. Shares in U.S.-listed Arcadium jumped around 50% on Monday, after the companies confirmed negotiations.
Rio would gain access to lithium mines, processing facilities and deposits in Argentina, Australia, Canada and the United States to fuel decades of growth, as well as a customer base that includes automakers Tesla, BMW and General Motors.
Lithium prices have floundered due to Chinese oversupply and a slowdown in electric vehicle sales, resulting in miners of the metal emerging as attractive takeover targets.
The falling market prompted Rio to act, CEO Jakob Stausholm told Reuters, seeing the downturn as an opportunity to pick up top quality assets at the right price.
"We really want battery-grade lithium, i.e. the processing as well. And then, of course, we like to be an operator, and if you take those criteria, you very quickly come to Arcadium," he said.
"The way you should think about it is kind of a reverse takeover. This is not a case about cutting costs. This is a case about building faster and better," he added.
GOING FOR GROWTH
The deal would make Rio one of the largest producers of the battery-making metal alongside Albemarle and SQM.
Arcadium Chairman Peter Coleman said Rio would be able to bring its expertise in execution and a strong balance sheet to help develop Arcadium's assets.
"They are not capital constrained ... For us, we know that growth plans still relied on an improvement in price over the next two to three years, which is quite a significant improvement over where we are now," he told Reuters.
Rio intends to roll its existing lithium assets into the new business to ensure growth and keep Arcadium's staff. "Rio has indicated they're very keen to keep their expertise," he added.
Arcadium's mix of active mines, lithium deposits filled with decades of supply, and some of the industry's most advanced processing facilities would complement Rio's output of copper, iron ore and other critical minerals and help the Anglo-Australian mining giant expand its footprint in the global energy transition.
Rio's balance sheet could easily fund growth without straining the miner's existing operations, investors and analysts said.
Arcadium shares have fallen more than 37% since the start of the year, giving it a market capitalisation of $4.56 billion.
Jason Beddow, managing director at Australian fund manager Argo Investments, which owns shares in Rio, said the deal made a lot of sense.
"Yes it's a big premium but stocks have been sold off a lot," he said.
Beddow, who visited the companies' Canadian operations in recent weeks said: "They are both close together geographically, they both use Quebec hydropower. Rio has a strong chemicals business in Canada that this will slot into."
The transaction, which has been unanimously approved by the companies' boards, is expected to close in mid-2025.
The deal has been a lot smoother than those of some of its rivals.
Peer BHP Group walked away from its $49 billion plan to take over rival Anglo American, earlier this year following a six week pursuit and three rejected proposals.
BHP was barred from making another offer for Anglo for six months by UK competition regulators, which is up in late November.
(Reporting by Clara Denina in London, Archishma Iyer in Bengaluru and Melanie Burton in Melbourne, Ernest Scheyder in Houston; Editing by Abinaya Vijayaraghavan, Jamie Freed, Jacqueline Wong and Elaine Hardcastle)