Under the Scheme of Arrangement, Orocobre will acquire 100% of the shares in Galaxy. The combined group will create the fifth-largest global lithium chemicals company.
Big brokers have digested yesterday’s news and provide their opinions below.
Brokers weigh in on the Galaxy and Orocobre merger
Brokers are largely positive about the merger. However, they are reserved with their new share price targets. And understandably so, with the Galaxy and Orocobre share prices surging a respective 380% and 205% in the past 12-months.
Citi has observed the many benefits of the board-endorsed $4 billion merger. This includes scale benefits on operations, the marketing potential on improved product mix, and lower corporate overheads. The broker is still waiting for the company to quantify these synergies. For the time being, it assumes that the ‘MergeCo’ could be 5-12% earnings per share accretive in FY22 and FY23.
Citi is ‘buy’ rated on Ocorobre shares with a $6.75 target price.
Similarly, Macquarie believes the merged entity will provide synergies and accelerate the development of Argentinian operations. The combined group would also form a stronger base to fund its growth projects.
Macquarie rates Orocobre shares as an ‘outperform’ with a $7.10 target price.
Morgan Stanley was the only broker to have a negative target price despite its positive commentary. The broker believes the merger would “benefit both parties via scale, balance sheet capacity, and the ability to better sequence growth projects”.
Despite having nothing negative to say about the merger, it was ‘equal-weighted’ on Orocobre shares with a target price of just $4.35.
Orocobre shares have run more than 30% in April and currently fetching $6.53. While Galaxy shares have run more than 40% to $3.84.