Australia’s Wesfarmers Ltd launched a surprise A$1.5 billion ($1.1 billion) bid for Lynas Corp Ltd on Tuesday, swooping on the rare earths miner as it fends off worries about political risk at its plant in Malaysia.
A takeover would give the retail-to-chemicals conglomerate control of the world’s only producer outside China of the niche materials used in everything from electric cars to smartphones at a time when its shares have dragged near 18-month lows.
“It’s Wesfarmers’ style to buy counter-cyclically at a depressed price. They can easily afford it. I think it will be interesting to see what other bidders come out,” said an analyst who covers Wesfarmers. He declined to be named as he was not authorized to speak to media.
Lynas said it was assessing the unsolicited A$2.25 a share proposal, pitched at a 45 percent premium to its last close, which it described as “highly conditional, indicative and non-binding.”
Its shares jumped as much as 40 percent to A$2.17 a share, and were at A$2.11 in early afternoon trade. Shares in Wesfarmers fell as much as 3.7 percent, their biggest fall in a month.
Lynas, which has a mine in Western Australia and an $800 million processing plant in Malaysia, is facing problems getting license renewals for the plant due to concerns over waste storage.
Wesfarmers, mostly known as the operator behind home improvement depot Bunnings, also has businesses in chemicals, energy and fertilisers, and recently spun off its supermarket and coal divisions.
“An investment in Lynas leverages our unique assets and capabilities, including in chemical processing,” Wesfarmers managing director Rob Scott said in a statement.
The proposal is subject to a range of conditions, including that Lynas has relevant operating licenses in Malaysia for a “satisfactory period” following the close of the deal.
“The price is far too low and other bidders will likely pay more for it,” said analyst Dylan Kelly of CLSA in Sydney, which has a high conviction buy on the stock.
The bid priced Lynas’s major rare earth, Neodymium Praseodymium (NdPr) at $50 a kilogram versus CLSA’s long term target of $68/kg and spot of $37/kg, he said.
Source: Reuters.com