Rare-earths miner Molycorp, Inc. (MCP) agreed Thursday to acquire Canadian peer Neo Material Technologies, Inc. (NEM.TO) for about C$1.3 billion or $1.31 billion to gain greater access to the Chinese market, the world's largest rare-earth consumer and supplier. The deal has the unanimous approval of the two companies' boards of directors.
The deal, primarily subject to approval by two-third of Neo Materials' shareholders, is expected to close in the second or third quarter of 2012.
"This transaction will link two unique companies - one with a world-class, high-quality resource, and the other with world-class rare earth product design and processing capabilities," Molycorp's President and CEO Mark Smith said in a statement.
The deal will provide Greenwood Village, Colorado-based Molycorp access to Neo Material's direct operating and sales channels across Asia particularly in Japan and China, both of which together accounted for about 64 percent of Neo Material's sales in 2011.
China is the world's largest and fastest-growing rare earth consuming nation, currently consuming about 70 percent of global rare-earth production. China was also supplying about 95 percent of world's demand for rare earths, but has currently restricted rare-earth mining and clamped down on exports. Outside China, Molycorp is the largest owner of the rare-earth deposits, with Japan currently being its largest market.
"The industrial logic of this combination is highly compelling. We will be vertically integrating the world's best rare earth resource outside of China with the world's best rare earth processing technology company," Neo Material's President and CEO Constantine Karayannopoulos noted.
Molycorp will combine its world-class rare earth resource and low-cost production with Neo Material's development, processing, and distribution leadership in technically advanced rare earth products. The deal will also help Molycorp enter customer segments requiring value added, rare earth and rare metal production capabilities with up to 99.99999% purity for some elements.
Neo Material's existing infrastructure will also enable Molycorp to boost its overall production when the Project Phoenix Phase 2 production begins in 2013. The deal will also add gallium, rhenium, and indium among other magnetic powders and rare metals to Molycorp's current rare metals portfolio.
The deal will see Molycorp pay C$11.30 per share in cash and stock. Molycorp The company said the consideration will include cash of C$8.05 and 0.122 Molycorp shares.
Neo Materials shareholders will have the right to elect the ratio of cash and newly issued Molycorp shares as consideration, with the total being about 71.2 percent in cash and about 28.8 percent Molycorp shares.
The offer price of C$11.30 per share represents a 41.8 percent premium to Neo Material's closing price of C$7.97 on Thursday. The deal is expected to be accretive to Molycorp's 2012 earnings and cash flow, significant synergies identified.
Molycorp said it intends to fund a major chunk of the total cash consideration for the deal through a committed bridge financing facility from Morgan Stanley and Credit Suisse Group AG. The combined entities permanent financing will be taken care through long-term debt, existing cash on hand of the combined company, and the proceeds from any equity issuances.
MCP closed Thursday's regular trading session at $25.98, up $1.07 or 4.30% on a volume of 2.88 million shares, and added a further $0.47 or 1.81% in after-hours trading. In the past 52-week period, the stock has been trading in a range of $23.05 to $79.16.
Meanwhile, NEM.TO closed on the TSX at C$7.97, down C$0.03 or 0.37% on a volume of 0.85 million shares.
by RTT Staff Writer
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