The Lynas Corporation Ltd (ASX: LYC) share price has been launched into orbit today by Wesfarmers Ltd (ASX: WES), which has decided to use its balance sheet to make a takeover bid for rare earth miner.
Following the demerger of Coles Group Ltd (ASX: COL) in November, the sale of their Bengalla coal mine and the sale of Quadrant Energy to Santos (ASX: STO), Wesfarmers has been on the hunt for acquisitions.
The Deal
Wesfarmers is offering $2.25 per share in an all-cash offer to Lynas shareholders, pitched at a whopping 45% premium to the last traded price of $1.55 per share. The takeover offer values Lynas at $1.5 billion. At this stage, the proposal is conditional and among other things subject to Wesfarmers conducting due diligence.
The Managing Director of Wesfarmers Rob Scott said, “an investment in Lynas leverages our unique assets and capabilities, including in chemical processing”.
The deal in also reliant on Lynas retaining its operating licences in Malaysia, which has run into issues lately. The company’s auditors warned of a material risk to its business after the company revealed it may not be able to comply with tough conditions imposed by the Malaysian government on its licence to operate in the country last year.
Buy, Hold or Sell
While its no surprise that Wesfarmers has made an acquisition, this particular acquisition may surprise some. Wesfarmers has experience in chemicals and resources, so they aren’t straying too far from their core competencies. However given the issues surrounding Lynas’ licence in Malaysia, I would suggest further investigation is warranted before making an investment decision.
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At the time of writing, David does not have a financial interest in any of the companies mentioned.
