Talks between Johnson Matthey and Tata began a fortnight ago after the British chemicals firm decided to exit the business
Tata Chemicals Ltd is in talks to buy the battery materials business of London-based Johnson Matthey in a deal that can provide an edge to the Tata group in the fast-growing electric vehicle market, two people with direct knowledge of the plan said.
The Tata group company is one of the frontrunners in the race to buy this key business from Johnson Matthey, the people said, requesting anonymity. A deal could be struck at a valuation of $500-700 million, they added.
“Johnson Matthey’s battery materials and solutions have been accepted globally for many decades, especially in geographies where Tata Motors operates," one of the two people said.
The deal will help group company Tata Motors expand its range of electric vehicles and secure a cost advantage over rival carmakers in the EV space, as none of them have in-house battery materials manufacturing ability.
The deal is in line with Tata group’s aspirations to lead the Indian EV market, where it has created an early lead with its Nexon EV offering.
A Tata Chemicals spokesperson said, “the company, as a policy, does not comment on media speculation or rumours".
Lower manufacturing costs may help Tata Motors, the maker of cars, utility vehicles, pick-ups, trucks and buses, price its electric vehicles cheaper than rivals, allowing the company to grab a larger share of the EV market.
Talks between Johnson Matthey and Tata Chemicals began a fortnight back after the British speciality chemicals company decided to exit the business, warning that supply chain disruptions, lower precious metal prices, and US labour shortages may hit profits and make it tough to sustain the battery materials business.
Responding to a query on the ongoing discussions for the proposed deal, Nick Laitner, a Johnson Matthey spokesperson from London, said, “Johnson Matthey announced on 11 November that it would be looking for a buyer for its battery materials business. We are having a number of discussions with various companies, and it is too early to comment any further on these."
For many years, the Johnson Matthey group had been betting on developing a jet-black substance called eLNO, made from nickel, cobalt and lithium, and used in cathodes, the most expensive part of an electric car’s battery, said an analyst.
This sector is dominated by Chinese producers such as CATL, with Europe’s Umicore and BASF, the large Western competitors.
While announcing its plan to sell its battery materials business, Johnson Matthey said potential returns from its capital-intensive battery materials unit would be inadequate as the market has become commoditized, stripping away its ability to offer a unique product.
Goldman Sachs has been hired as one of the investment bankers by Tata group for the proposed deal, according to the people cited above.
“Discussions are progressing steadily, and an acquisition could be announced within a month," said the first person.
A Goldman Sachs spokesperson from Hong Kong declined to comment.
Tata’s acquisition plan is in line with the group’s aim to have the country’s largest EV portfolio and the capacity to provide parts and solutions to other automakers, creating an additional revenue channel for the Tata group.
Last month, Tata Motors and TPG Rise Climate entered into a binding agreement whereby TPG Rise Climate, along with its co-investor ADQ, shall invest in a Tata Motors unit that will be incorporated.
TPG Rise Climate and co-investors will invest ₹7,500 crore in compulsory convertible instruments to secure between 11% and 15% stake in this company, translating into an equity valuation of up to $9.1 billion.
The new company plans to leverage all existing investments and capabilities of Tata Motors and channel future investments into electric vehicles, dedicated battery-powered electric vehicle (BEV) platforms, advanced automotive technologies and catalyze investments in charging infrastructure and battery technologies, said the company.
Over the next five years, this company will create a portfolio of 10 EVs and, in association with Tata Power Ltd, catalyze the creation of widespread charging infrastructure to facilitate rapid EV adoption in India, said Tata Motors in a 12 October statement.
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