Molycorp Inc. (MCP), after losing two- thirds of its value in 10 months as demand for rare-earth metals imploded, is now seeking to boost shareholder returns with its biggest takeover yet.
The owner of the largest rare-earth deposit outside China yesterday agreed to buy Neo Material Technologies Inc. for C$1.3 billion ($1.3 billion) in cash and stock. At 4.7 times earnings before interest, taxes, depreciation and amortization, the deal is the cheapest by a diversified metals producer on record, according to data compiled by Bloomberg. Molycorp’s stock rallied after the announcement.
While Molycorp is opening a rare-earth mine in the Mojave Desert to compete with Chinese producers that control more than 90 percent of global supplies, shareholders have lost money since it reached an all-time high in May as prices plummeted for the elements used in hybrid cars, fluorescent bulbs and guided missiles. With Neo Material (NEM), Molycorp will gain the ability to produce more types of magnets and increase sales to China, boosting profitability, Byron Capital Markets Ltd. said.
“It actually makes it a stronger story,” Jonathan Hykawy, a Toronto-based analyst at Byron Capital, said in a telephone interview. “Molycorp effectively has the pieces of the puzzle if this acquisition goes through to basically do the entire magnet industry. That’s a big, big, added slice of added cash flow that Molycorp really isn’t paying all that much for.”...MORE