Galaxy (ASX:GXY) and Orocobre (ASX:ORE) announce mega lithium merger

The Galaxy Resources Limited (ASX:GXY) share price and the Orocobre Limited (ASX:ORE) share price will be on watch after announcing a mega merger…

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The Galaxy Resources Limited (ASX: GXY) share price and the Orocobre Limited (ASX: ORE) share price will be on watch on Monday.

This follows the news that the two lithium miners are looking at a merger.

What was announced?

This morning Galaxy and Orocobre announced that they have agreed to a proposed $4 billion merger of equals that will establish a new force in the global lithium sector.

According to the release, the merger will create the fifth largest global lithium chemicals company with a diversified production base and exciting growth platform. Management also notes that there is the potential to unlock significant synergies and realise value for all shareholders.

What’s next?

The release explains that the two companies will merge via a Galaxy Scheme of Arrangement (scheme) pursuant to which Orocobre will acquire 100% of the shares in Galaxy.

Galaxy shareholders will receive 0.569 Orocobre shares for each Galaxy share held at the scheme record date.

Upon implementation, Orocobre shareholders will own 54.2% of the fully diluted share capital of the combined entity and Galaxy shareholders will own the remaining 45.8%.

The scheme is unanimously recommended by the Galaxy Board and each Galaxy director intends to vote in favour of it. This is subject to no superior proposal emerging and an independent expert’s report concluding that it is in the best interests of Galaxy shareholders.

The scheme is also endorsed and supported by the Orocobre Board, subject to no proposal for Orocobre emerging.

Changes at the top

Should the merger complete as planned, Galaxy’s Chairman, Martin Rowley, would become Non-Executive Chairman. Whereas Orocobre’s Chairman, Robert Hubbard, would become its Deputy Chairman.

Leading the company will be Orocobre’s CEO and Managing Director, Martín Pérez de Solay. Galaxy’s CEO, Simon Hay, will become President of International Business, reporting to Mr de Solay.

What the company will be named remains a mystery. The release explains that a name representing the global reach of the new entity will be chosen in due course.

Management commentary

Galaxy’s Chairman, Martin Rowley, commented: “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.”

This sentiment was echoed by Orocobre’s Chairman, Robert Hubbard.

He commented: “The logic of this merger is compelling. Both Orocobre and Galaxy shareholders, will benefit from the diversification, growth and scale of a top 5 global lithium chemicals company. I take this opportunity to re-iterate the group’s ongoing commitment to the principles of delivering the highest level of transparency of our environmental, social and governance performance, the foundations upon which our assets have and will continue to be developed.”

Orocobre’s CEO and Managing Director, Martín Pérez de Solay, also spoke very positively about the plans.

Mr de Solay said: “The merger brings together assets and teams with highly complementary skills and knowledge, with a unique opportunity to create a leading independent lithium company. The merger consolidates the combined group’s position in Argentina and will give us significant operational, technical and financial flexibility to deliver the full value of our combined portfolio.”

Galaxy CEO Simon Hay concluded: “The merger with Orocobre represents an exciting opportunity for both Orocobre and Galaxy shareholders to consolidate and realise the full potential of our asset portfolios and technical capabilities. The transaction will allow the group to materially accelerate the development of our combined growth projects.”

This news is likely to have gone down well with investors. So all eyes will be on both the Galaxy share price and the Orocobre share price at the open.

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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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