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Why the Galaxy (ASX:GXY) share price rocketed 55% higher in April

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The Galaxy Resources Limited (ASX: GXY) share price was one of the best performers on the All Ordinaries index in April.

Over the 30 days, the lithium producer’s shares recorded an enormous 55% gain.

This stretched the 12-month gain by the Galaxy share price to a remarkable 450%.

Why did the Galaxy share price smash the market in April?

There were a couple of catalysts for the strong rise by the Galaxy share price in April.

The first was a further increase in lithium prices thanks to strong demand from electric vehicle manufacturers and concerns about supply.

But perhaps the main reason for the rise in the Galaxy share price was the announcement of a mega-merger with fellow lithium producer Orocobre Limited (ASX: ORE).

For the same reason, the Orocobre share price rose an impressive 42% over the month.

The Galaxy-Orocobre merger

In the middle of April, Galaxy and Orocobre announced a proposed $4 billion merger of equals that will establish a new force in the global lithium sector.

The merger will create the fifth largest global lithium chemicals company, with a diversified production base and exciting growth platform.

Management also advised that that it believes there is scope to unlock significant synergies and realise value for all shareholders.

The merged company, which will operate under a new name, will have Galaxy’s Chairman, Martin Rowley, as its Non-Executive Chairman and Orocobre’s Chairman, Robert Hubbard, as its Deputy Chairman.

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

What was the reaction?

The merger went down well with analysts at Macquarie. Following its announcement, the broker put an outperform rating and $4.50 price target on its shares. This compares very favourably to the current Galaxy share price of $3.88.

Its analysts also have an outperform rating and $7.10 price target on Orocobre’s shares. This compares to the latest Orocobre share price of $6.68.

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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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