What might the Allkem mega merger mean for Pilbara Minerals shares?

Could Pilbara Minerals be gearing up for its own M&A activity?

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Key points

  • The Pilbara Minerals share price is rocketing 7% today to trade at $4.88 at the time of writing
  • Its gains come amid news its lithium peer Allkem will be merging with New York-listed Livent to create a $15.7 billion lithium giant
  • Pilbara Minerals' CEO recently shut down talk of potential M&A activity, but broker Morgans has tipped the company as a potential takeover target

S&P/ASX 200 Index (ASX: XJO) lithium share Pilbara Minerals Ltd (ASX: PLS) is rocketing amid news peer Allkem Ltd (ASX: AKE) is to merge with Livent Corp (NYSE: LTHM), creating a $15.7 billion monolith.

Right now, stock in Pilbara Minerals is up 7.25%, trading at $4.88 a share.

At the same time, the Allkem share price is soaring 14.37% to $14.765 while Livent shares leapt 5% overnight to close at US$25.50 apiece.

No doubt, some market watchers are wondering what the merger news could mean for Pilbara Minerals.

What might Allkem's merger mean for Pilbara Minerals shares?

Allkem has hit headlines overnight with a merger plan that would make Pilbara Minerals the second largest pure-play lithium share on the ASX.

Pilbara Minerals' $13.6 billion market capitalisation would be dwarfed by that of the entity born from Allkem and Livent. But that's likely the only direct implication the ASX 200 favourite might expect from the merger of its peers.

Still, the news might have left some Pilbara Minerals investors wondering if the lithium giant could kick off its own merger and acquisition (M&A) campaign.

Well, unfortunately for M&A fans, management shut down hopes of any such activity in the near future. Speaking on the release of the company's latest quarterly report, CEO and managing director Dale Henderson said:

We've got a very full plate delivering on our organic growth strategy … that remains the focus and M&A is well down the list.

But that's not to say a suitor won't come knocking for Pilbara Minerals.

Could the ASX 200 lithium stock be a takeover target?

Morgans tipped Pilbara Minerals as a potential takeover target last month after industry giant Albemarle approached the ASX's Liontown Resources Ltd (ASX: LTR), as my Fool colleague James reported.

Interestingly, the broker foresaw Allkem's M&A news, saying:

We see both [Allkem] and [Pilbara Minerals] as potential targets in addition to the ongoing interest in [Liontown]. The relative attractiveness of each depends on the needs of the buyer. 

Morgans noted that Allkem was priced cheaper on some measures, but offered less spodumene.

Meanwhile, Pilbara Minerals was said to offer faster exposure to lithium, but a smaller resource base and was more expensive per tonne of lithium carbonate equivalent. Morgans continued last month:

[Pilbara Minerals'] size would restrict interest to larger mining houses, international chemicals companies, battery producers or OEMs.

The broker has an add rating and a $5 price target on Pilbara Minerals shares.

On the other hand, Goldman Sachs doesn't expect a suitor to knock on the lithium producer's door. The broker has a neutral rating and a $4.10 price target on Pilbara Minerals shares.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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