Is a slice of Livent worth holding onto Allkem shares?

Mining worker making frame with his hands and peering through itMining worker making frame with his hands and peering through it

One of the big pieces of ASX 200 news last week involved ASX 200 lithium shares. Specifically,  Allkem Ltd (ASX: AKE) shares. Last Thursday, Allkem announced that it was planning a merger with the US lithium stock Livent Corp (NYSE: LTHM).

The merged company, given the tentative name of ‘NewCo’, would emerge as a US$10.6 billion global lithium giant if the union was to go ahead.

Investors have reacted euphorically to this news. Since last Thursday, the Allkem share price has risen by a hefty 15.10%, even after factoring in yesterday’s 1.85% drop at the close.

Over in the United States, Livent investors have also responded with excitement. Since the news became public, Livent stock has risen by a solid 5.3%.

If the merger does go through, it would result in Allkem investors receiving one share in ‘NewCo’ for every Allkem share owned. Livent investors would receive 2.406 NewCo shares for every Livent share owned.

After the merger is complete, Allkem investors would own 56% of the merged company, with Livent investors owning the other 44%.

NewCo would then be primarily listed on the New York Stock Exchange (NYSE). Conversely, ASX investors would own their new shares through a new CHESS Depositary Interest (CDI) arrangement. This would be similar to what happened to Afterpay investors when that company was acquired by Block Inc (ASX: SQ2). 

So is it time for Allkem investors to cash out? Or is the ‘NewCo’ evolution of Livent/Allkem worth sticking to?

What does the future hold for Allkem shares?

Well, let’s start with some numbers. According to Allkem, the combined company would have made US$1.9 billion in revenue in the 2022 calendar year. It also would have produced an estimated US$1.2 billion of adjusted earnings before interest, tax, depreciation and amortisation (EBITDA).

The companies also anticipate that merging the two businesses will result in US$125 million in annual synergies and US$200 million in one-off capital expenditure savings.

So does this make it a no-brainer for investors?

Well, one ASX expert is definitively in this camp. As we covered last week, ASX broker Goldman Sachs is cheering the merger on. It is anticipated that NewCo will be a global “top 3 lithium producer” with a strong balance sheet that it can use to support growth opportunities.

Here’s some of what Goldman’s analysts had to say:

The merger would also imply a stronger/more defensive balance sheet to fund the proposed and possible growth pipeline, where management noted the current execution pipeline will continue without taking pause as both businesses are already fully funded to execute respective projects.

So that’s how one ASX expert rates Allkem’s future as part of NewCo. But it’s worth pointing out that the merger isn’t a done deal yet, so be sure to watch this space.

The post Is a slice of Livent worth holding onto Allkem shares? appeared first on The Motley Fool Australia.

FREE Beginners Investing Guide

Despite what some people may say – we believe investing in shares doesn’t have to be overwhelming or complicated…

For over a decade, we’ve been helping everyday Aussies get started on their journey.

And to help even more people cut through some of the confusion “experts’” seem to want to perpetuate – we’ve created a brand-new “how to” guide.

Yes, Claim my FREE copy!
*Returns as of April 3 2023

(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];[property] = defaultValue;

setButtonColorDefaults(“#0095C8”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#0095C8”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);

More reading

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Block. The Motley Fool Australia has positions in and has recommended Block. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s