Rio Tinto (RIO.US) to buy Arcadium Lithium (ALTM.US) for $6.7B, Wall Street calls it "not worth it"

Shares of Rio Tinto (RIO.US) fell 0.8% on Wednesday after the company announced it would buy Arcadium Lithium (ALTM.US) for $6.7 billion, a 90% premium, following two days of more than 4% declines as some Wall Street analysts called the deal "not worth it."

Analyst Matt Britzman of Hargreaves Lansdown said the deal was a classic case of buying low, given the sharp fall in lithium spot prices from recent highs, but that its price could come under scrutiny.

"It's not worth it," Britzman said. "Commodity investors are often bearish on M&A." "Arcadium is currently negative free cash flow due to the low price and large investment in new projects, so if Rio wants to turn this into an accretive acquisition, it has some work to do, and that won't happen immediately."

Research firm CreditSights said: "We believe that the acquisition may be a better way for Rio to get into the lithium business, especially given the low lithium valuations, rather than spending billions on greenfield projects in high-risk jurisdictions that may or may not succeed."

The deal will make Rio the world's third-largest lithium miner. Rio will pay $5.85 a share for Arcadium Lithium, a full-cash offer that is 90% higher than Arcadium Lithium's closing price on Oct. 4, before Rio confirmed its bid.

Rio CEO Jakob Stausholm said in a statement: "The acquisition of Arcadium Lithium is a significant step forward in Rio's long-term strategy to create a world-class lithium business to complement our leading aluminum and copper businesses and provide the materials needed for the energy transition."

The deal is Rio's largest since its $38 billion acquisition of Alcan in 2007. Rio believes lithium will help drive a new wave of growth in the battery metals industry, and the acquisition comes as falling lithium prices have weighed on lithium stocks like Arcadium.