European Lithium Ltd (ASX: EUR) shares are surging on Tuesday.
At the time of writing, the ASX lithium share is up a massive 57% to 44.7 cents.
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What is driving this explosive move from the ASX lithium share?
The massive gain has been driven by the announcement of a proposed combination with NASDAQ-listed Critical Metals Corp (NASDAQ: CRML).
According to the release, European Lithium has entered into a non-binding indicative agreement that will see Critical Metals acquire 100% of its shares via a scheme of arrangement.
If completed, shareholders would receive scrip in Critical Metals valued at approximately A$0.58 per European Lithium share.
This is a significant premium. Based on recent trading prices, the deal represents a 137% premium to European Lithium's last closing price and a 113% premium to its 20-day volume weighted average price.
The independent board committee (IBC) commented:
After careful consideration, the IBC determined to recommend to the EUR Board that it would be in the best interests of EUR shareholders to enter the non-binding indicative agreement to further progress the Proposal. The IBC will continue to engage with CRML and will advise shareholders on the merits of the Proposal and any potential future entry into binding transaction documentation.
Strategic rationale
The release notes that proposed transaction would effectively consolidate European Lithium with Critical Metals, where it already holds a significant stake.
Management believes this would simplify the investment structure and remove the look-through valuation currently applied to its shareholding in Critical Metals.
It would also give shareholders direct exposure to a NASDAQ-listed ASX share with greater liquidity and broader access to capital markets.
In addition, the combined entity would strengthen its position in critical minerals, including rare earths, and lithium assets across Europe and Greenland.
Not a done deal
It is important to note that the proposal is non-binding at this stage.
The transaction remains subject to due diligence, regulatory approvals, and the negotiation of binding agreements.
European Lithium has warned that there is no guarantee the deal will ultimately proceed.
However, the ASX lithium share's independent director and IBC chair, Michael Carter, believes it would be a major positive for shareholders if it went ahead. He said:
This transaction will deliver substantial value to EUR shareholders, priced at a 136% premium. The combination will enable EUR shareholders to directly own interests in Critical Metals Corp. which will be strategically positioned as the sole owner of the Tanbreez rare earth project in Greenland and will benefit from substantial cash balances and a portfolio of critical minerals development opportunities.
