By Melanie Burton
MELBOURNE (Reuters) - Australia's Wesfarmers Ltd made a surprise $1.1 billion offer on Tuesday for rare earths miner Lynas Corp Ltd, looking for new growth after a series of asset sales, but its shares fell as investors fretted about increased risk.
A successful takeover would give the retail-to-chemicals conglomerate exposure to new energy materials, with control of the only proven producer outside China of materials used in everything from electric cars to wind turbines.
However, investors eyed concerns around Lynas' processing plant in Malaysia, sending Wesfarmers shares down 3.5 percent in their biggest fall in a month, wiping about A$1.4 billion ($1 billion) off the company's market value.
"It seems like quite a risky proposition. They have permitting issues at a facility in Malaysia and some environmental concerns, so it does increase their risk profile," said a Wesfarmers analyst, who declined to be named.
Lynas, which has a mine in Western Australia and an $800 million processing plant in Malaysia, is facing problems getting licence renewals for the plant due to concerns over waste storage.
The company said it was assessing the unsolicited A$2.25 a share proposal, pitched at a 45 percent premium to its last close, which it described as "highly conditional, indicative and non-binding."
Lynas shares, which have been dragging around 18-month lows, closed up 35 percent at A$2.10, below the bid price.
"It's Wesfarmers' style to buy counter-cyclically at a depressed price. They can easily afford it," said a second Wesfarmers analyst, who declined to be named as he was not authorised to speak to media.
Wesfarmers, which has built up a warchest after the sale of its KMart auto business and coal mine assets, said it had complementary mining and chemical processing expertise, as well as a track record of working with governments.
"An investment in Lynas leverages our unique assets and capabilities, including in chemical processing," Wesfarmers managing director Rob Scott said in a statement.
The proposal is subject to a range of conditions, including that Lynas has relevant operating licences in Malaysia for a "satisfactory period" following the close of the deal.
Broker CLSA said rival bids may emerge from Japanese or international trading houses given Lynas' role in a niche commodity market.
"The price is far too low and other bidders will likely pay more for it," said analyst Dylan Kelly of CLSA in Sydney, which has a high conviction buy on the stock.
The bid priced Lynas's major rare earth, Neodymium Praseodymium (NdPr) at $50 a kilogram versus CLSA's long term target of $68/kg and spot of $37/kg, he said.
(Reporting by Melanie Burton; additional reporting by Aditya Soni in Bengaluru; editing by Grant McCool and Richard Pullin)