Highly Certain Cash Payment to Alpha Shareholders Otherwise Exposed to Risk as Owners of an Early-Stage Lithium Exploration Company
Tecpetrol is a Credible Transaction Party with a Clear Path to Closing
Offer Affords Shareholders the Opportunity to Determine the Outcome of their Investment Following Alpha's Unwillingness to Engage
Tecpetrol Prepared to Increase Offer Price if Shown Greater Value Through Engagement
Tecpetrol's Intention is to Responsibly Develop Alpha's Lithium Assets as part of the Integrated Western Battery Supply Chain
Tecpetrol Investments S.L. ("Tecpetrol"), a member of the Techint Group, announced that it intends to make a formal offer (the "Offer") to acquire all of the issued and outstanding common shares ("Shares") of Alpha Lithium Corporation, a Canadian incorporated, headquartered and listed company, for cash consideration of C$1.24 per Share (the "Offer Price"). Tecpetrol intends to make the Offer directly to Alpha shareholders so that they can determine the outcome of their investment.
The Offer follows repeated attempts by Tecpetrol to constructively engage with Alpha. Most recently, Tecpetrol suggested that the parties engage in confidential discussions with respect to the value of the Company to determine whether a mutually agreeable transaction price could be put to Alpha shareholders for their consideration. Tecpetrol reiterated to Alpha that it had an ability to increase the value of its proposal if the parties could reach agreement on a mutually acceptable transaction price. In order to facilitate these discussions, Tecpetrol waived its previous requests for due diligence and exclusivity. Despite the waiver of the due diligence request, which eliminated the need for a non-disclosure agreement, Alpha has continued to insist that Tecpetrol execute a comprehensive non-disclosure agreement that would preclude Tecpetrol from making an offer directly to shareholders and inappropriately limit Tecpetrol's strategic options, depriving shareholders of the opportunity to choose to accept or reject the Offer.
Tecpetrol is a company incorporated in Spain that is part of the Techint Group, a conglomerate with a strong presence in Canada for more than 20 years, notably through Tenaris, the leading Canadian manufacturer and supplier of steel tubes for the Canadian oil and gas industry. Tecpetrol's intention, in line with its energy transition strategy, is to responsibly develop these premium lithium assets as part of the integrated Western battery supply chain. The proposal is aligned with Canada's critical minerals strategy, whose vision is to increase the supply of critical minerals and support the development of the domestic and global value chains for the green and digital economy.
Financial and Strategic Benefits of the Offer
Tecpetrol firmly believes that shareholders should have the opportunity to determine what is best for their investment by accepting compelling, immediate and certain value in the form of C$1.24 in cash per Share from a credible transaction partner with a clear path to closing. Tecpetrol believes that if the Company were to pursue an asset-level transaction (see "Background to the Offer" below), shareholders could be deprived of that opportunity.
Tecpetrol believes the significant benefits of the Offer include, among others:
Attractive Cash Payment and Immediate Liquidity to Shareholders Through De-Risked Transaction. The Offer crystallizes robust value for Alpha shareholders, at near Alpha's all-time high trading price, despite being made in a market environment with lower lithium prices and rising costs.1
The Offer also provides immediate liquidity to holders of a thinly-traded investment in an early-stage lithium exploration company, in a de-risked transaction that eliminates the exploration, development and execution risk associated with bringing the Alpha's properties into production.
Credible and Experienced Counterparty with Clear Path to Closing. The Techint Group is a large global industrial organization and has an extensive track record and reputation of completing large transactions in industrial and extractive sectors around the globe, including in Canada. The Techint Group's strong integration in the Western allied countries' supply chains and significant presence and history of successful investment in Canada make it a credible transaction partner with a clear path to closing given that, to the knowledge of Tecpetrol, there are no regulatory approvals required in connection with the Offer. In contrast, Tecpetrol believes that there would be meaningful transaction risk for Alpha shareholders if the Company were to pursue a transaction under its ongoing asset-level auction process with a party from a country likely to face significant scrutiny under the Investment Canada Act and the Government of Canada's Policy Regarding Foreign Investments from State-Owned Enterprises in Critical Minerals under the Investment Canada Act (the "Critical Minerals Policy"), such as Alpha's previously proposed asset-level transaction with Uranium One (a subsidiary of a Russian state-owned enterprise) that had to be aborted. (See "Background to the Offer" below.)
Risk of Downward Impact on Share Price if Offer Not Accepted. If the Offer is not successful and no alternative transaction is available or is otherwise capable of obtaining the regulatory approvals, Tecpetrol believes it is highly likely that the trading price of the Shares will decline to lower levels and trade in a way that reflects the inherent volatility of the global capital markets and lithium commodity prices and the limited liquidity of the Shares.
Standalone Plan Remains Challenging and Underfunded. The development of Alpha's assets requires substantial debt and/or equity financing to fund a significant capital program, which would be carried out in a market environment that carries material financing risk and would likely result in significant dilution to shareholders – all against a backdrop of significant development and execution risk that necessitates technical expertise.
Tax-Efficient Structure. Tecpetrol is contemplating an acquisition of Shares directly from Alpha shareholders, which Tecpetrol expects will be more tax-efficient for shareholders than a distribution following an asset sale.
Opportunity for Shareholders to Determine the Outcome of their Investment. Four of the Company's six directors are current or former members of management and not independent. Tecpetrol believes that neither the Offer nor its attempts to engage with Alpha have received independent consideration. Alpha shareholders can now determine for themselves whether to accept the Offer.
No Financing Condition. Tecpetrol has the financial resources necessary to satisfy the Offer in full with cash on hand and does not require external financing.
Background to the Offer
Since its creation, Tecpetrol's Energy Transition Unit has continually evaluated potential investment, acquisition and other commercial opportunities in energy assets in Argentina and elsewhere that, in line with its energy transition strategy, may be responsibly developed as part of the integrated Western battery supply chain. Tecpetrol recognizes that a key component to building an emerging Western battery supply chain is lithium supply, and Tecpetrol believes that its energy transition strategy is aligned with Western efforts to secure this supply, including the Government of Canada's Critical Minerals Policy.
On December 1, 2022, Tecpetrol received an unsolicited invitation to participate in an auction process for the sale of Alpha's interest in the Tolillar Project (the "Sale Process"). It was Tecpetrol's understanding that the Sale Process was to be broad in nature and include participants from several countries, including China. It was also Tecpetrol's understanding that the Sale Process was focused on a sale of an interest in the Tolillar Project, rather than a corporate-level transaction involving Alpha, and potentially enable participation in the Sale Process by parties that would likely face significant scrutiny under the national security provisions of the Investment Canada Act and the Critical Minerals Policy.
At the time, Tecpetrol indicated its willingness to participate in the Sale Process, as well as its willingness to explore a potential corporate-level transaction that Alpha shareholders might find more attractive than the asset-level structure put forward in the Sale Process. In Tecpetrol's view, with the Tolillar Project being Alpha's sole material mineral property and representing substantially all of its assets, a corporate-level transaction would not only afford shareholders the chance to determine what is best for their investment but also allow them the opportunity to dispose of their entire interest in Alpha and receive full value for their Shares. In addition, based on the information available to Tecpetrol and its advisors, a corporate-level transaction would generally be more tax-efficient for shareholders than a distribution to shareholders of the proceeds resulting from an asset-level transaction, the amount and timing of which distribution is at the discretion of Alpha's board of directors.
However, Tecpetrol was advised by representatives of the Company that Alpha would not consider a corporate-level transaction. Tecpetrol interpreted this response to indicate that, by exclusively pursuing an asset-level structure, Alpha was prioritizing parties other than Tecpetrol with its Sale Process, which Tecpetrol believed were likely parties that would face significant scrutiny under the Investment Canada Act. As a result, Tecpetrol declined to participate in the Sale Process, but between December 2022 and April 2023 continued monitoring the situation, conducting its due diligence of Alpha and the Tolillar Project based on publicly-available information, and advancing its evaluation of a potential transaction.
By May 2023, Tecpetrol had completed its due diligence of public information. On May 15, 2023, Tecpetrol submitted to Alpha a non-binding proposal (the "Initial Proposal") to acquire all of the issued and outstanding Shares for a purchase price of C$1.24 per Share. Tecpetrol also offered Alpha an opportunity to discuss the Initial Proposal in additional detail.
On May 16, 2023, Alpha advised Tecpetrol that its board of directors was not willing to consider the Initial Proposal or engage in discussions with Tecpetrol. In addition, Tecpetrol's financial advisor had a discussion with Alpha's financial advisor to, among other things, emphasize Tecpetrol's position as a credible and experienced counterparty with a clear path to closing and Tecpetrol's willingness to increase the purchase price put forward in the Initial Proposal if it were afforded due diligence access. Tecpetrol's financial advisor also requested guidance regarding the extent of improvement to the Offer Price that would be necessary to obtain the support of Alpha's board of directors, but no such guidance was provided.
In light of Alpha's refusal to consider the Initial Proposal or engage in discussions with Tecpetrol, Tecpetrol believed that shareholders should be made aware of the Initial Proposal and, on May 22, 2023, issued a press release disclosing the key terms of the Initial Proposal.
On May 31, 2023, Tecpetrol's financial advisor again contacted Alpha's financial advisor to communicate Tecpetrol's willingness to waive its previous requests for due diligence access and exclusivity and provide Alpha with an opportunity to engage directly in discussions with respect to the value of the Company with a view to increasing the Offer Price following discussions.
On June 1 2023, Tecpetrol's financial advisor contacted Alpha's financial advisor to propose specific steps for a confidential exchange of information regarding the value at which each party would support a potential transaction. Following that update, notwithstanding that Tecpetrol had waived its due diligence request, which eliminated the need for a non-disclosure agreement, Alpha insisted that Tecpetrol execute a comprehensive non-disclosure agreement in the form prepared by Alpha that would preclude Tecpetrol from making an offer directly to shareholders and inappropriately limit Tecpetrol's strategic options; depriving shareholders of the opportunity to choose to accept or reject the Offer.
Tecpetrol is not prepared to accept these inappropriate preconditions. Accordingly, in light of Alpha's repeated refusal to engage constructively in discussions with Tecpetrol to increase the Offer Price, Tecpetrol intends to proceed directly with the Offer to Alpha shareholders.
Offer Details
Full details of the Offer, which will be formally made by a wholly-owned Canadian subsidiary of Tecpetrol, will be provided in a formal offer and take-over bid circular, letter of transmittal and notice of guaranteed delivery (collectively, the "Offer Documents") to be filed with Canadian securities regulatory authorities and mailed to Alpha shareholders. Tecpetrol will request a list of security holders from Alpha and expects to mail the Offer Documents as soon as practicable after receipt of such list. The Offer will be open for acceptance for a period of 105 days following formal commencement, unless the Offer is extended, accelerated or withdrawn in accordance with its terms, and will constitute a "Permitted Bid" for purposes of Alpha's shareholder rights plan. The shareholder rights plan has not been approved or ratified by shareholders.
The Offer will be conditional upon certain conditions being satisfied or, where permitted, waived at or prior to the expiry of the Offer. Such conditions will include, among others to be described in the formal offer and take-over bid circular: (a) there having been validly deposited under the Offer and not withdrawn that number of Shares which represent more than 50% of the outstanding Shares, excluding those Shares beneficially owned, or over which control or direction is exercised, by Tecpetrol or by any Person acting jointly or in concert with Tecpetrol, which is a statutory non-waivable condition; (b) there having been validly deposited under the Offer and not withdrawn that number of Shares (together with associated rights under Alpha's shareholder rights plan) which represent at the expiry of the Offer at least two-thirds of the outstanding Shares on a fully-diluted basis; (c) Tecpetrol having determined that there has not occurred a material adverse effect in respect of Alpha; and (d) Tecpetrol having determined that Alpha has not taken any action or disclosed that it intends to take any action that might make it inadvisable for Tecpetrol to proceed with the Offer, such as the entering into any definitive agreement or transaction under or in connection with the Sale Process. The Offer is not subject to any due diligence or access condition, financing condition or Tecpetrol shareholder approval condition. In addition, to the knowledge of Tecpetrol, there are no regulatory approvals required in connection with the Offer.
If the statutory minimum is satisfied and the other conditions to the Offer are satisfied or waived at or prior to the expiry of the Offer such that Tecpetrol takes up the Shares validly deposited under the Offer, it will make a public announcement of the foregoing and extend the period during which Shares may be deposited and tendered to the Offer for a period of not less than 10 business days after the date of such announcement.
Following completion of the Offer, Tecpetrol intends (but is not required) to enter into one or more transactions to enable it to acquire all Shares not acquired under the Offer, including a compulsory acquisition or subsequent acquisition transaction. If Tecpetrol is able to complete such a transaction, Tecpetrol intends to seek to delist the Shares from the NEO and to cause Alpha to cease to be a reporting issuer if permitted under applicable law.
Full details of the Offer will be provided in the Offer Documents to be filed with Canadian securities regulatory authorities and mailed to Alpha shareholders. This news release is not a substitute for the Offer Documents. The Offer Documents are not currently available but, once they are made available, will contain important information relating to the Offer, Tecpetrol and Alpha and should be reviewed carefully.
Shareholders should consult their own tax advisors having regard to their own particular circumstances to determine the particular tax consequences to them of a disposition of Shares pursuant to the Offer, a compulsory acquisition or subsequent acquisition transaction.
Readers are cautioned that Tecpetrol may determine not to make or proceed with the Offer and there can be no assurance that the Offer will be made or that the final terms of the Offer will be as described in this news release.
Advisors
BMO Capital Markets is serving as financial advisor and Davies Ward Phillips & Vineberg LLP is serving as legal advisor to Tecpetrol. In addition, Crestview Strategy is serving as government relations advisor and Teneo is serving as strategic communications advisor.
