Sunday, December 9, 2012

Talison Lithium backs $848,000,000 Chinese Takeover Bid


Talison Lithium backs $848,000,000 Chinese Takeover Bid

“Talison Lithium Limited ("Talison" or the "Company") (TSX:TLH) announced that it has today concluded its discussions with Windfield Holdings Pty Ltd, an Australian incorporated wholly-owned subsidiary of Chengdu Tianqi Industry (Group) Co., Ltd (together "Tianqi") and reached agreement under which it is proposed that Tianqi will acquire the balance of the ordinary shares that it does not already own and options in Talison by way of schemes of arrangement for a cash consideration of C$7.50(1) ("Tianqi Schemes").

Highlights

The Tianqi Schemes constitute a superior proposal(2);
  • C$7.50 cash offer for each Share
  • US$25 million cash deposit paid by Tianqi in an Australian bank as a reverse break fee
  • Minimal conditions
  • Talison Directors unanimously recommend Tianqi Schemes, in the absence of a superior proposal
  • Talison and Tianqi have entered into a Scheme Implementation Agreement ("Tianqi SIA") with minimal conditions, subject to Rockwood's 5 business day matching right
  • Rockwood has a 5 business day right to match, although Talison notes that on November 20, 2012, Rockwood made a "best and final offer" statement which, under Australian policy, is expected to limit Rockwood's ability to increase its offer
  • If the Rockwood SIA terminates, Talison expects to pay Rockwood a C$7 million break fee

Tianqi Proposal

Background

On November 19, 2012, Talison received a non-binding, conditional proposal from Tianqi to acquire all of the Shares of Talison which it did not already own for C$7.15 per Share via a scheme of arrangement.

On November 21, 2012, the Talison Directors determined that to meet their fiduciary duties Talison would engage with Tianqi and its advisers to determine if the Tianqi proposal represented a superior proposal (as defined in the Rockwood Proposal).

On November 23, 2012, Tianqi received notification from the Australian Foreign Investment Board (FIRB) that it has no objections to Tianqi's proposed acquisition of Talison. Following receipt of this notification Tianqi would own 19.99% of Talison's issued share capital.

At the conclusion of negotiations between Talison and Tianqi an offer price of C$7.50 per Share was agreed. This values the equity of Talison at approximately C$848 million on a fully diluted basis.

Recommendation

The Talison Directors have now considered the Tianqi Scheme and determined that it represents a superior proposal (as defined in the Rockwood Proposal). The Talison Directors therefore unanimously recommend that Securityholders vote in favour of the Tianqi Schemes, in the absence of a Superior Proposal (as defined in the Tianqi SIA) and subject to an Independent Expert concluding that the Tianqi Schemes are in the best interests of Securityholders. Each of the Talison Directors intends to vote the Shares and Options held or controlled by them as at the registered holder record date in favour of the Tianqi Schemes.

The cash consideration of C$7.50 per Share offered under the Tianqi Scheme represents:
  • A 15% premium to the consideration under the Rockwood Proposal of C$6.50; and
  • A 77% premium to Talison's last closing price of C$4.24 on August 22, 2012, the day prior to the announcement of the Rockwood Proposal.
Resource Capital Fund IV L.P. and Resource Capital Fund V L.P. (collectively, the "RCF Funds") have each confirmed to Talison that, in the absence of an offer which the RCF Funds determine is superior, each of the RCF Funds intend to vote in favour of the Tianqi Share Scheme in respect of the Talison Shares held by them at the relevant time."




Talison Lithium Ltd. (TLH - TSX, $7.15)
Target Price: $7.50 ↑
Higher Bid from the Chinese Is Deemed "Superior"

Jonathan Lee, MBA
Battery Technologies and Materials Analyst: Byron Capital Markets
1.347.763.1497

  • "Higher and Binding Bid from $7.15 to $7.50: Winfield Holdings Ptd Ltd (Winfield), which previously had a non-binding $7.15/sh all-cash bid for Talison Lithium Ltd. (Talison) increased the bid to a "superior proposal" of $7.50/sh in cash. Talison's board of directors and the largest shareholder, Resource Capital Funds, recommended the bid and stated they would vote in favour of the new offer in the absence of a higher bid. We find this as positive news, and it gives comfort in the acquisition being completed. Additionally, as previously stated, Winfield received all Chinese approvals for the acquisition and also received Australian Foreign Investment Review Board (FIRB) approval. The expected timeline to finalize the deal is the end of February 2013, or three months from now. We maintain our TENDER rating and raise our target price to $7.50 as the new binding offer price is released. 
  • Bidder Showing Commitment: As a sign of Winfield's commitment to completing the deal, the company will put US$25 million in a trust fund in an Australian bank. The capital is paid to Talison if Winfield is unable to reach an agreement. We believe this additional US$25 million added to the already 19.99% ownership stake in Talison shows a significant commitment of over $150 million in the company. This gives us comfort that Winfield is serious about the strategic asset to build its existing lithium processing business. We believe that the company may vertically integrate Talison's operation with its downstream lithium processing company, Tianqi Lithium Industries (SZE:002466, Tianqi).
  • A Higher Bid Is Doubtful: Strategically, this acquisition for Winfield makes sense. Its related company, Tianqi, is currently dependent on Talison for its raw material and is also a marketer of Talison's material in China. With a market cap of US$575 million, $30 million in cash and US$7 million in income, the acquisition will be significantly accretive to Tianqi's Chinese lithium operations. This is why we believe Winfield is willing to bid $7.50/sh. Additionally, with Rockwood's final and best offer of $6.50/sh, we believe there is limited room to submit a higher bid.”
---Jonathan Lee, MBA
Battery Technologies and Materials Analyst: Byron Capital Markets
1.347.763.1497

Johnston-Sequoia Commentary:

"Patience and perseverance have a magical effect by which difficulties disappear & obstacles vanish"
--- John Quincey Adams

As a student of the market I have to say that I am extremely impressed with the chess game that Sichuan Tianqi Lithium Industries Inc. (CH: 002466) ("Tianqi") has played in its pursuit of Talison Lithium Ltd (TSX: TLH).  Going head to head with NYSE specialty chemical giant Rockwood Holdings Inc. (NYSE: ROC) (which announced its own unsolicited $724,000,000 all cash bid for TLH back in August) -  Tianqi (Talison's largest buyer of Lithium concentrate) quietly acquired 15% of TLH for approximately $6.50 per share.  Following this announcement Talison received a non-binding, conditional proposal from Tianqi to acquire all of the Shares of Talison for $7.15 per share on November 19, 2012.  Negotiations between Talison and Tianqi resulted in an offer price of C$7.50 per Share. This values TLH at approximately C$848 million on a fully diluted basis.

Tianqi's bid of C$7.50 per Share represents:
  • A 15% premium to the Rockwood bid of C$6.50; and
  • A 77% premium to Talison's last closing price of C$4.24 on August 22, 2012, the day prior to the announcement of the Rockwood bid.
To all of our Salares Lithium Inc. (TSX.V: LIT) and Talsion Lithium Ltd. (TSX: TLH) readers and shareholders who stuck with this story - congratulations.  This is again, Discovery Investing 101.  The Tianqi bid represents approximately a 1,671% ROI (557% per year ROI) in the past three years for Salares Lithium Inc. shareholders who held there shares since December 9th, 2009.

I am an advisor of Talison Lithium Ltd. (and formerly of Salares Lithium Inc.) and own shares in the company.  As always please do your own due diligence.

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