Galaxy has put in a merger request with Lithium One and has been accepted and recommended by the board. According to the Lithium One's financial advisor, BMO Capital Markets, they are in an opinion that the deal is fair.
Problem with this deal is Galaxy is suspended as they are going to raise capital, A50million to strengthen the merged entity's balanced sheet. If in the event the deal fall through, they will use the money for acquiring new assets.
There seems to be a window of opportunity here. The offer is CAD $ 1.55 . This CAD $1.55 is the determinant of how much galaxy shares one can get. Currently it is pegged at 1.8 but if in the capital raising for Galaxy is priced below A$0.829, the multiplier will be adjusted accordingly.
For example if they raised capital at A$0.80, then at the exchange rate of 1.04, you will receive 1.86 shares of Galaxy for each Lithium One shares you own.
Lithium one traded at CAD 1.28 at yesterdays close. This is like a 21% discount to the terms. I guess investors are hesitant right now as you cant trade Galaxy. But in my opinion, one can go long Lithium One and short either another lithium producer or short a market index option (ASX or TSX) if they want less company specific risk. This is called texas hedge. Probably when Galaxy shares are trading again, they will reflect somewhere close to CAD $1.55 and the investor can get out of the trade if they want or try to get borrow in Galaxy and do the proper hedge.
I wonder how long will this opportunity exist.
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