May 1, 2019 / 10:40 PM / 5 months ago

Wesfarmers bets on electric cars with $544 million bid for Australian lithium miner Kidman

SYDNEY/MELBOURNE (Reuters) - Australian retail conglomerate Wesfarmers Ltd offered A$776 million ($544 million) to buy lithium miner Kidman Resources Ltd on Thursday, its second bid in two months to deepen its exposure to high-tech minerals.

The offer, which has the backing of Kidman’s board and major shareholders, was pitched at a 47 percent premium to Kidman’s last closing price and the stock soared to just below the A$1.90 offer price at the start of trade.

For Wesfarmers, which last year sold out of coal mining and in March bid A$1.5 billion for rare-earth producer Lynas Corp Ltd, it is its firmest bet yet on future demand for raw materials behind products from electric cars to wind turbines.

The push comes as Wesfarmers is looking to diversify beyond the retail businesses that dominate its portfolio as a housing downturn in Australia weighs on spending and is seen hitting its successful hardware business particularly hard.

“Once again Wesfarmers are at the front of the curve as it deploys its funds from the sale of coal assets and grocery business into the new frontier of electric vehicles,” said James McGlew, executive director of corporate stockbroking at Perth broker Argonaut and a Wesfarmers shareholder.

Wesfarmers shares edged down 0.3 percent, as the broader market also fell on Thursday, while Kidman shares traded at A$1.87, a 10-month high.

“We are really happy with the deal,” said Joe Belladonna, Chief Financial Officer of Kidman’s biggest shareholder, Western Areas, adding that Wesfarmers’ large balance sheet would support the development of its Mt Holland lithium project.

DRIVING GROWTH

Under Rob Scott, who took over as Wesfarmers’ Managing Director in 2017, the company has made the biggest overhaul of its portfolio in a decade, quitting coal and spinning out its slow-growth supermarket group, Coles, to seek better returns elsewhere.

Governments around the world have set ambitious requirements for automakers to increase electric vehicle sales over the next decade, driving demand for lithium. However, a recent oversupply has pounded the shareprices of miners, making Kidman a target.

Scott said the company had been looking at the lithium sector for two years and chose Kidman, whose major asset is a half-share of the Mt Holland project in Western Australia because of the lithium lode’s quality and longevity.

“We expect battery-grade lithium hydroxide to play an important role in the electric-vehicle supply chain, as car manufacturers shift to production of longer-range battery-electric vehicles,” Scott told a conference call.

Wesfarmers planned to refine the ore near its existing chemical plants in Perth, he said.

Kidman, which is developing Mt Holland in partnerhsip with Chile’s Sociedad Quimica y Minera de Chile S.A. (SQM), said the deal has the potential to crystallize significant value for shareholders, while minimizing risks.

Shares under the control of the directors and management of Kidman, about 17 percent of the total, intend to vote for the proposal, Kidman said in a statement, while Wesfarmers had been granted exclusive due diligence.

Any deal is subject to due diligence and shareholder and regulatory approvals.

The bid follows closely on Wesfarmers’ offer for Lynas, which has so far strenuously fended off its suitor and is also locked in a dispute with Malaysia over waste handling at its rare earths processing plant there.

Reporting by Tom Westbrook in Sydney, Melanie Burton in Melbourne; additional reporting by Rashmi Ashok in Bengaluru; Editing by Bernard Orr and Richard Pullin

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