The big news this week is that mergers and acquisitions (M&A) activity is heating up in the lithium industry with the proposed merger of Allkem Ltd (ASX: AKE) and Livent Corp (NYSE: LTHM).
The news went down well with investors on both sides of the Pacific Ocean, sending their shares hurtling higher.
But what about brokers? How have they responded to the Allkem-Livent merger? Let's find out.
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Allkem merger creates a 'top 3 lithium producer'
Analysts at Goldman Sachs have responded positively to the news. The broker highlights that it will create a "top 3 lithium producer" globally if the transaction completes.
In addition, its analysts highlight that the combination of the two lithium miners will result in a stronger balance sheet that supports their growth opportunities. It said:
The merger would also imply a stronger/more defensive balance sheet to fund the proposed and possible growth pipeline, where management noted the current execution pipeline will continue without taking pause as both businesses are already fully funded to execute respective projects.
Goldman also suggested that the M&A activity may not stop at the Allkem merger, which will be music to the ears of ASX lithium shareholders. It commented:
On lithium sector M&A more broadly, as we have highlighted, those in a position for strategic consolidation with South American lithium brine producers (other developers/emerging operators) may also have synergies in these types of lithium projects, while global miners/commodities business likely remain interested in lithium assets.
Goldman has retained its buy rating. However, it hasn't changed its price target, which still sits at $12.90.
Brine processing techniques could be key
Morgans is also very positive on the Allkem merger with Livent. As well as the potential synergies, it highlights that the latter's advanced brine processing techniques could help driver a stronger performance from Allkem's assets. It said:
It is possible that the accelerated take up of different brine processing techniques at AKE's projects, that are used by LTHM, could unlock the large potential of those resources much faster than we and the market have allowed.
However, due to the jump in the Allkem share price yesterday, the broker has downgraded its shares to a hold rating with a $14.40 price target. It commented:
We reduce our rating to HOLD given the extremely strong share price reaction. We think the deal makes sense for AKE but there is limited fundamental upside given today's rally.
Though, it concedes that there's potential for a third-party to come in with a counteroffer that starts a bidding war. Keep an eye out for that!
