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Rockwood Rises on Talison Stake Buy

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Shares of specialty chemicals and advanced materials company Rockwood Holdings, Inc. shot up as much as around 7% after it announced a joint venture agreement to buy a stake in lithium producer Talison Lithium Pty Ltd.

The New Jersey-based company landed a joint venture deal with China’s leading lithium company Chengdu Tianqi Industry Group, under which, it will secure a 49% interest in Talison Lithium with Tianqi holding the balance. The completion of the transaction, which is subject to regulatory clearances, is expected during first-quarter 2014.

Rockwood’s shares closed at $71.94 in the trading session following the news release, gaining around 5%. The stock is up roughly 46% so far this year.

Rockwood and Tianqi are expected to contribute equity of $196 million and $204 million, respectively, to the joint venture. Moreover, Rockwood will offer the joint venture a two-year secured loan of up to $670 million at 8% interest. The company will also offer Tianqi a three-year call option to invest 20%-30% in the equity of the European arm of its global lithium business.

Rockwood plans to finance its investment in the joint venture using its cash on hand. Lazard Ltd. (LAZ - Free Report) acted as the company’s financial advisor on the deal.

Talison is a leading global producer of lithium, and supplies its customer network from the Greenbushes Lithium Operations in Western Australia. It has a leading position in the Chinese lithium concentrates market. Greenbushes Lithium Operations is estimated to be the largest known reserves of lithium spodumene minerals in the world.

The acquisition, which complements Rockwood’s core lithium business, will provide it access to a significant lithium reserve. The deal underscores the company’s commitment to allocate capital in a disciplined manner to boost shareholder value. The acquisition is expected to be significantly accretive to Rockwood’s earnings in 2014.

Rockwood, a Zacks Rank #5 (Strong Sell) stock,  remains focused on optimizing free cash flows and implementing appropriate capital allocation strategies through dividends and share repurchases and reinvestment in key businesses.

Other companies in the specialty chemical space with favorabe Zacks Rank are Ferro Corporation (FOE - Free Report) and HB Fuller Co. (FUL - Free Report) with both holding a Zacks Rank #2 (Buy).

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