The lithium miners of Galaxy Resources Limited (ASX: GXY) and Orocobre Limited (ASX: ORE) are planning a merger.
What’s happening?
Galaxy Resources and Orocobre have agreed a $4 billion ‘merger of equals’ to create a strong business in the global lithium sector. It will be the fifth largest global lithium chemicals company.
Looking at the technicalities of the merger, Orocobre will acquire 100% of the shares in Galaxy. But then Galaxy shareholders will receive 0.569 Orocobre shares for each Galaxy share held at the scheme record date.
After the transaction is done, Orocobre shareholders will own 54.2% of the business, whilst Galaxy shareholders will own the other 45.8%.
The scheme is supported by both sets of boards of directors.
A new name for the merged entity will be selected in due course to represent the global reach of the new entity, which will have its head office in Buenos Aires, Argentina, a corporate headquarters on the Australian East Coast and an office in Perth.
What are the benefits of the merger?
It will bring together a highly complementary portfolio of assets, delivering geographical and product diversification across brine, hard rock and vertical integration across the supply chain.
This merger will, according to the two companies, create an industry leading growth profile with a stronger financial position to help accelerate growth and perhaps capture more of the downstream value of the lithium supply chain.
The final point used to sell this deal to investors was that it has the potential to generate significant shareholder value with enhanced scale and financial capacity.
Leadership comments
Galaxy Chairman Martin Rowley said: “This transaction has the potential to be a significant value-creating opportunity for Galaxy and Orocobre shareholders. The scheme provides shareholders of Galaxy with the opportunity to share in the significant benefits of being part of a larger diversified group and the synergies expected to be available to help enhance and progress our portfolio of world class assets. The merged entity’s growth opportunities in both brine and hard rock position it uniquely to take advantage of expected rising EV demand for lithium.”
Is it a good deal?
It sounds like the two lithium miners will be much stronger together than separate, so I can see why they are pursuing this transaction.
If it all goes to plan, then the merger will occur in the middle of August 2021.
Lithium demand is certainly going to keep rising as electric vehicles become more and more common. However, as commodity businesses I’m not sure when the right time to buy a lithium miner would be. How much more supply is going to come online?
