Allkem Ltd (ASX: AKE) shares are shooting higher on Thursday morning.
At the time of writing, the lithium miner's shares are up 14% to $14.76.
This means the Allkem share price is now up 30% since this time last year, as you can see on the chart below.
Why is the Allkem share price shooting higher?
Investors have been scrambling to buy Allkem shares today after it announced an agreement to merge with lithium giant Livent Corp (NYSE: LTHM).
Allkem, which is no stranger to mergers, will combine with Livent in an all-stock merger of equals. This will create a US$10.6 billion (A$15.7 billion) leading global lithium chemicals producer.
And while there are still quite a few hurdles to jump through, if all goes to plan, the company expects the transaction to close by the end of 2023.
If it does, it will see "NewCo" listed on the NYSE with a secondary listing on the ASX. Allkem shareholders will own approximately 56% and Livent shareholders will own the balance.
Reaction
Wall Street responded positively overnight, driving the Livent share price over 5% higher to US$25.50.
This equates to A$36.95 at current exchange rates. So, with an agreed exchange ratio of 2.406 NewCo shares per Livent share (and Allkem shareholders getting one NewCo share per share), this values the Allkem share price at A$15.63. Which explains why Allkem shares are shooting higher today.
Investors appear excited by the prospect of the two companies joining forces for a number of reasons. This includes its proposed vertically integrated business model with the scale and expertise to meet the rapidly growing demand for lithium chemical products.
In addition, NewCo's run-rate operating cost synergies are estimated to be approximately US$125 million (pre-tax) per annum. It also expects to realise approximately US$200 million in one-time capital expenditure savings. That's US$325 million in value creation just there!
All in all, the way Allkem shares are performing today appears to indicate that the market agrees with the company's CEO, Martín Pérez de Solay, when he says:
I believe Allkem shareholders will realize significant benefits from the Transaction as the business transforms into a truly global player with listings in the US and Australia.
