Why Arcadium Lithium Stock Was Soaring This Week

Formerly beaten-down metallurgy stock Arcadium Lithium (NYSE: ALTM) saw a dramatic reversal in its fortunes over the past few days. First on rumors, then shortly thereafter on solid news that it was being acquired, the company's share price improved dramatically in a very short span of time. According to data compiled by S&P Global Market Intelligence, as of early Friday morning the stock was up almost 80% week to date.

A $6.7 billion buy

Very few newsworthy events would make a stock leap in price like that; the No. 1 suspect is usually a buyout. Sure enough, international mining conglomerate Rio Tinto announced Wednesday it agreed to buy Arcadium Lithium for $5.85 per share in an all-cash deal valued at $6.7 billion. Rio Tinto obviously wanted the company badly, as the purchase price is 90% higher than Arcadium Lithium's closing price at the end of last week.

The acquirer is opening its wallet because, as it wrote in a press release on the acquisition, "The transaction will bring Arcadium's world-class, complementary lithium business into Rio Tinto's portfolio, establishing a global leader in energy transition commodities -- from aluminum and copper to high-grade iron ore and lithium."

Lithium, the lightest metal on the periodic table of the elements, is crucial in the manufacture of electric vehicle (EV) and smartphone batteries. Such products remain popular despite recent slumps in EV sales growth and the saturation of smartphones.

Analysts adjust to the company's future

Following news of the deal, analysts tracking Arcadium Lithium stock adjusted their price targets and recommendations on the stock to reflect its future as a Rio Tinto asset. HSBC's Santhosh Seshadri, sensibly enough, downgraded his recommendation from buy to hold while upping his price target to that $5.85 purchase price; previously he valued the shares at $4.25 apiece.

He wrote that what Rio Tinto is paying for the company "seems fair given near-term risks to capacity and a possible equity dilution and/or leveraged balance sheet had the company raised additional financing."

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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.