Wesfarmers lines up Kidman Resources as latest takeover target

Wesfarmers Kidman Resources ASX KDR WES lithium takeover bid
Wesfarmers’ bid values Kidman Resources at $776 million ($1.90 per share) – a 47.3% premium to its last closing price.

Kidman Resources (ASX: KDR) has become Wesfarmers’ (ASX: WES) latest takeover target after the conglomerate lobbed a $776 million bid for the advanced lithium explorer.

Today’s bid come less than two months after Wesfarmers made a $1.5 billion unsolicited grab for rare earths miner Lynas Corporation (ASX: LYC).

The offer was followed with a statement from Lynas’ board claiming it “would not engage with Wesfarmers on the terms outlined in the proposal” and advising shareholders there was no action to be taken regarding the unsolicited bid.

However, in this morning’s announcement, Kidman’s board has noted it will engage with Wesfarmers with a view to finalising a binding transaction that will be put to shareholders.

As a result, Wesfarmers has been granted an exclusive period to complete due diligence on Kidman till the end of the month.

Wesfarmers’ offer

Under Wesfarmers’ offer, it proposes to acquire all of the shares in Kidman at $1.90 each, which represents a 47.3% premium to Kidman’s last closing price of $1.29 on Wednesday.

The bid has numerous hurdles to jump before it becomes a done deal including various shareholder and regulatory approvals and Wesfarmers agreeing to certain commercial matters with Kidman’s joint venture partner Sociedad Quimica y Minera de Chile SA (SQM), which is the world’s largest lithium producer – accounting for 20% of global supply.

Backing the deal are Kidman’s three major shareholders, which hold a combined 16% stake and have noted they would vote in favour of the takeover should it become binding.

Wesfarmers has also shored up its intentions to cement the deal by scooping up almost 70 million shares in Kidman on Wednesday giving it a 17% interest.

Kidman Resources snapshot

Kidman owns 50% of the Mt Holland lithium project in Western Australia, which hosts the Earl Grey deposit – known as one of the world’s largest hard rock lithium deposits with a resource of 189 million tonnes at 1.5% lithium and a reserve of 94.2Mt at 1.5% lithium.

A definitive feasibility study is underway to develop an integrated mine-to-refinery operation, with a plant proposed to be established in Kwinana WA to produce a battery grade lithium hydroxide product for lithium-ion battery markets.

Under the prefeasibility study, which was released in December, the operation would have a 47-year life to generate total life-time revenue of US$33.3 billion to be shared by both parties.

Wesfarmers’ rationale

With a diversified business portfolio spanning retail, chemicals, energy and fertilisers Wesfarmers expects to draw on its cash reserves, operating capability and knowledge to facilitate the development of Kidman and SQM’s proposed mine and lithium hydroxide plant in Kwinana.

Wesfarmers’ rationale is to secure a stake in the accelerating electric vehicle revolution where it anticipates it will generate attractive returns due to lithium being a critical raw material in EV batteries.

Currently, Wesfarmers manufactures industrial chemicals and fertilisers in Kwinana, which are shipped nationally and overseas.

The company expects its experience will complement that of SQM, which has a market cap of around $13 billion, and vast experience in producing and selling lithium products including lithium hydroxide.

This morning’s news sent Kidman’s share price rocketing more than 40% to reach $1.83 before mid-morning, while Wesfarmer’s share price dipped 0.89% to $35.47.

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