What was announced?
According to the announcement, Wesfarmers has entered into a Process and Exclusivity Deed with Kidman Resources in relation to its proposal to acquire 100% of the outstanding shares in Kidman for $1.90 cash per share by way of a scheme of arrangement.
The offer price represents a premium of 47.3% to the last closing price and a 44.4% premium to the 60-day volume weighted average price. It values the Western Australia-based lithium miner at approximately $776 million.
The transaction will be funded through Wesfarmers’ existing balance sheet capacity and debt facilities.
Why Kidman Resources?
Wesfarmers’ managing director, Rob Scott, believes the acquisition will provide an attractive investment in a project which is set to benefit from the global uptake of electric vehicles. In addition to this, it will draw upon the Wesfarmers Chemicals, Energy & Fertilisers (WesCEF) business’ ability to design, construct, commission and operate complex chemical plants.”
He said: “The proposed acquisition is consistent with our objective of deploying capital in areas where we can deliver attractive returns to our shareholders by leveraging our existing strengths and capabilities. It will underpin the development of the Mt Holland lithium project and deliver Kidman’s shareholders an attractive premium and certain cash return.”
Before adding: “The acquisition of Kidman provides an opportunity to invest in and develop a large-scale, long-life and high-grade lithium hydroxide project in Western Australia. It also creates a unique partnership with SQM, a global leader in the lithium industry with a long operating history and deep market knowledge.”
The Kidman Resources board has stated that it supports the proposal and intends to recommend that shareholders vote in favour of the proposed scheme upon execution of transaction documentation on commercial terms consistent with the proposal.
In addition to this, a number of the lithium miner’s major shareholders, which together own 17% of the company, have indicated their support for the proposal.
Should there be no superior proposal and the independent expert concludes that the scheme is in the best interests of shareholders, it appears as though the acquisition has a very good chance of completing.
Should you buy Wesfarmers shares?
I think the Mt Holland lithium project has a lot of potential and this deal could prove to be a very good one if lithium prices rebound by the time it commences production in FY 2022.
And whilst it is a risky investment, I think it is worth giving Wesfarmers the benefit of the doubt due to its strong track record.
As a result, I continue to see Wesfarmers as a great buy and hold option along with the spun off Coles Group Ltd (ASX: COL) business.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COLESGROUP DEF SET and Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.