SCHEDULE 13D/A: Glencore Seeks to Acquire Li-Cycle Amidst Liquidity Strain, Proposing Capital Restructuring

Glencore, a major shareholder, has formally expressed interest in acquiring Li-Cycle Holdings Corp. and/or substantially all of its business, citing the need to address the company's operational and capital structure issues.

Summary

• Glencore plc, Glencore International AG, and Glencore Canada Corporation collectively beneficially own 84,404,412 Common Shares of Li-Cycle Holdings Corp., representing approximately 66.7% of the outstanding Common Shares.
• This ownership includes 84,396,989 Common Shares issuable upon conversion of secured and unsecured notes held by Glencore Canada Corporation, plus 7,423 Common Shares awarded to Mr. Kunal Sinha.
• Glencore is in discussions with Li-Cycle's management, board, and other stakeholders to explore a potential acquisition of the company or substantially all of its business.
• The proposed transaction aims to maximize value and enable Li-Cycle to address its operational and capital structure issues, including its strained liquidity.
• Li-Cycle has granted Glencore a waiver from certain governance restrictions to facilitate discussions regarding a potential going-private or acquisition transaction.
• Glencore Canada Corporation also granted Li-Cycle a temporary waiver from certain minimum market capitalization and listing requirements under the Glencore Notes.
• The acquisition proposal is non-binding and subject to extensive due diligence, regulatory approvals, execution of definitive agreements, Li-Cycle's immediate cash preservation efforts, and a 'right-sizing' of Li-Cycle's capital structure, including the extinguishment of all outstanding warrants.

Sentiment

Score: 4

Explanation: The document indicates significant financial distress for Li-Cycle, with 'strained liquidity' and the need for capital structure 'right-sizing.' While Glencore's acquisition interest offers a potential lifeline, the terms could be unfavorable for existing shareholders, and the outcome is uncertain due to the non-binding nature and numerous conditions. Glencore's past legal issues, though resolved, also add a layer of historical negative context.

Positives

• Glencore's strong interest in acquiring Li-Cycle could provide a clear path forward for the company, potentially resolving its operational and capital structure challenges.
• The proposed acquisition by a major shareholder like Glencore could stabilize Li-Cycle's financial position and provide necessary capital.
• Glencore has already granted waivers to Li-Cycle regarding note covenants, indicating a supportive stance during this period of financial strain.

Negatives

• Li-Cycle is facing 'strained liquidity' and needs to commence 'immediate effort to preserve cash,' indicating significant financial difficulties.
• The proposed transaction is subject to a 'right-sizing' of Li-Cycle's capital structure, including the 'extinguishment of all outstanding warrants,' which could imply dilution or unfavorable terms for existing shareholders and warrant holders.
• The non-binding nature of Glencore's proposal means there is no guarantee of a definitive agreement or successful transaction.
• Glencore's extensive history of legal proceedings, including significant fines and penalties for bribery and market manipulation, could raise governance concerns, although these are past actions.

Risks

• Liquidity Risk: Li-Cycle's 'already strained liquidity' poses an immediate operational and financial challenge.
• Transaction Risk: The potential acquisition is non-binding and subject to numerous conditions, including satisfactory due diligence, regulatory approvals, and agreement on capital structure 'right-sizing,' which may not be met.
• Shareholder Dilution/Value Erosion Risk: The 'right-sizing' of the capital structure and extinguishment of warrants could negatively impact existing shareholders and warrant holders.
• Operational Risk: Glencore's stated purpose for the acquisition is to address 'issues impacting its operations,' suggesting ongoing operational challenges at Li-Cycle.
• Regulatory/Legal Risk: Glencore's past legal issues, while resolved, highlight the importance of robust compliance and governance, which will be under scrutiny.
• Integration Risk: If the acquisition proceeds, integrating Li-Cycle's operations and technology into Glencore's existing structure could present challenges.

Future Outlook

Glencore is actively exploring a potential acquisition of Li-Cycle or substantially all of its business, aiming to maximize value and address Li-Cycle's operational and capital structure issues. This includes a focus on Li-Cycle preserving cash and a 'right-sizing' of its capital structure, including the extinguishment of warrants. Glencore intends to work expeditiously towards a definitive agreement.

Management Comments

• "We believe that such a Potential Transaction could maximize the value of the business and enable the Company to address the issues impacting its operations and capital structure." (Glencore Canada Corporation)
• "Our entry into definitive documents regarding a Potential Transaction is subject to the completion to our satisfaction of our due diligence of the Company." (Glencore Canada Corporation)
• "Any Potential Transaction would be subject to, among other things: (a) receipt of all necessary authorizations, consents, orders, and regulatory approvals; (b) execution of a satisfactory definitive agreement and related documentation; (c) the Company commencing an immediate effort to preserve cash to avoid further worsening the Company’s already strained liquidity; and (d) agreement by all requisite stakeholders of the Company to a right-sizing of the Company’s capital structure in a manner satisfactory to Glencore, including the extinguishment of all outstanding warrants." (Glencore Canada Corporation)
• "This letter is a non-binding indication of our interest only and does not constitute an offer or agreement either with respect to the Company or a Potential Transaction nor does it create any legally binding obligation on any party." (Glencore Canada Corporation)
• "It is our strong preference to work together expeditiously to come to agreement with respect to a Potential Transaction, which you can then present promptly to your shareholders." (Glencore Canada Corporation)
• "Glencore does not admit the findings of the OAG, but in the interests of resolving this matter has agreed not to appeal the summary penalty order." (Glencore International AG regarding Swiss OAG investigation)

Industry Context

This announcement highlights the ongoing consolidation and strategic investments within the battery recycling and critical minerals sector. As demand for electric vehicles and renewable energy storage grows, securing a sustainable supply of battery materials through recycling becomes increasingly vital. Glencore, a global diversified natural resource company, is expanding its footprint in this area, indicating a strategic move to integrate recycling capabilities into its broader commodity trading and mining operations. Li-Cycle's financial challenges underscore the capital-intensive nature and potential difficulties in scaling up new technologies in this emerging industry.

Comparison to Industry Standards

• The document does not provide specific comparable companies, projects, or results to benchmark Li-Cycle's performance against industry standards.
• However, Glencore's significant investment and potential acquisition interest in Li-Cycle, a leading lithium-ion battery recycler, suggests a strategic move to secure a position in the nascent but growing battery recycling market. This aligns with broader industry trends where major players are looking to establish circular economy models for critical minerals.
• The mention of Li-Cycle's 'strained liquidity' and the need for 'right-sizing' its capital structure indicates that Li-Cycle may be underperforming relative to the capital requirements and financial stability typically expected for scaling industrial operations in this sector.
• Glencore's past legal settlements, totaling over $1 billion in fines and forfeitures across multiple jurisdictions, are substantial and reflect a historical pattern of compliance issues that are significantly higher than typical industry averages for well-governed companies. While these are past issues, they set a high bar for ongoing compliance monitoring.

Corporate Governance

Legal Proceedings

• Glencore International AG pled guilty to one count of conspiracy to violate the US Foreign Corrupt Practices Act (FCPA) related to past actions in certain overseas jurisdictions, agreeing to $428,521,173 in fines and $272,185,792 in forfeiture and disgorgement (May 24, 2022).
• Glencore AG pled guilty to one count of conspiracy to commit commodity price manipulation related to past market conduct in certain US fuel oil markets, agreeing to a fine of $341,221,682 and forfeiture of $144,417,203 (May 24, 2022).
• Glencore International AG, Glencore AG, and Chemoil Corporation reached an agreement to resolve an investigation by the CFTC for civil violations of the Commodity Exchange Act and CFTC regulations, agreeing to pay $333,548,040 in civil penalties and disgorgement (May 24, 2022).
• Glencore agreed to pay $39,598,367 under a resolution with the Brazilian Federal Prosecutors Office in connection with its bribery investigation (May 24, 2022).
• Glencore Energy UK Limited pled guilty to five counts of bribery and two counts of failure to prevent bribery under the UK Bribery Act 2010 (June 21, 2022), and was sentenced to pay GBP 280,965,092.95 (November 3, 2022).
• The Office of the Attorney General of Switzerland (OAG) closed its criminal investigation against Glencore International, holding it criminally liable for failing to prevent bribery by a business partner in 2011 in the Democratic Republic of the Congo, sentencing it to a fine of CHF 2 million and a compensation claim of US$150 million (August 5, 2024).
• The parallel investigation by the Dutch Prosecution Service has been concluded and dismissed.

Related Party Transactions

• Glencore Canada Corporation holds secured and unsecured convertible notes of Li-Cycle Holdings Corp., which are convertible into 84,396,989 Common Shares.
• 7,423 Common Shares of Li-Cycle were awarded to Mr. Kunal Sinha, Global Head of Recycling at the Glencore group, under Li-Cycle's 2021 Incentive Award Plan, held for the benefit of the Reporting Persons.
• Glencore Canada Corporation granted a temporary waiver to Li-Cycle from certain minimum market capitalization and listing requirements under the Glencore Notes.
• Li-Cycle granted Glencore a waiver from Section 3(b) of the Governance Letter Agreement to facilitate acquisition discussions.

Stakeholder Impact

• Shareholders (Li-Cycle): Potential for a significant change in ownership and control if the acquisition proceeds. The 'right-sizing' of the capital structure and extinguishment of warrants could lead to dilution or reduced value for existing shareholders.
• Warrant Holders (Li-Cycle): Explicit mention of 'extinguishment of all outstanding warrants' suggests a direct negative impact on warrant holders.
• Employees (Li-Cycle): A change of control could lead to organizational restructuring, though Glencore's interest in the business suggests continued operations.
• Creditors (Li-Cycle): Glencore, as a major creditor (noteholder), is driving the potential restructuring, which could impact other creditors depending on the final capital structure 'right-sizing.'
• Customers/Suppliers (Li-Cycle): A stable ownership structure under Glencore could provide long-term certainty for business relationships, but operational changes might occur.

Next Steps

• Li-Cycle to provide all necessary diligence information to Glencore.
• Glencore to complete its due diligence to its satisfaction.
• Li-Cycle to commence immediate efforts to preserve cash.
• Discussions to begin between Glencore, Li-Cycle, and other stakeholders regarding the Potential Transaction.
• Negotiation and execution of a satisfactory definitive agreement and related documentation.
• Receipt of all necessary authorizations, consents, orders, and regulatory approvals.
• Agreement by all requisite stakeholders on the 'right-sizing' of Li-Cycle's capital structure, including warrant extinguishment.
• Presentation of the Potential Transaction to Li-Cycle shareholders.

Key Dates

Recommendation

Keywords

Li-Cycle Holdings Corp., Glencore plc, Acquisition, Recycling, Battery Recycling, Lithium-ion, SEC Filing, Schedule 13D/A, Corporate Governance, Capital Structure, Liquidity, Mergers and Acquisitions, Mining, Commodities, FCPA, CFTC, Bribery, Market Manipulation