I have been involved in a number of schemes of arrangement takeovers in my past. The manipulation of the share price is virtually a given in the lead up to any non hostile takeover. This is playing out in a similar fashion to the WES takeover of Kidman Resources Ltd where its share price was "managed" for months before the bid. It is a characteristic mentioned by @Jenday and others that any costs of these activities are seen as just part of the cost of doing business in a takeover scenario. The upshot of it is that the share price is often not a fair measure of "value". I work out my own value which is largely what we have all done in the exercise of price expectations done by @tunnes. I will come back to that.
So as stated by @ChocolateTeapot there appears to be a number of "if and buts" in the announcement and the board has yet to agree and execute any agreed scheme terms, but nevertheless the board has decided to allow ALB access to our data for due diligence.
- So they have engaged with them which is a major step and would not have been taken lightly.
- Secondly, the language that has been used by ALB is that this is its "best and final" proposal (in the absence of a superior proposal). The use of "best and final" has important legal implications insofar as they will not, and indeed cannot, increase this offer unless someone offers more. So only if another party offers more, can they increase. I assume that includes any negative divergence in the comparison with the independent expert's assessment.
- Thirdly, the scheme deed agreed will likely involve undertakings from both parties eg. LTR will be required (probably) to agree to "no shop, no talk" provisions which prevent negotiations with any other party through the process. And there would likely be a "break fee" payable if an agreed deal is not followed through to completion. But let's wait and see the terms.
The legal legal framework is administered by the ASIC and the courts surrounding Schemes of Arrangement(SOA). Here is a link to a helpful site that I will refer to...
https://content.allens.com.au/the-allens-handbook-on-takeovers-in-australia/schemes-of-arrangement/
We must understand that this SOA is going to take months...and by the time it's completed (assuming it is successful), we will be virtually commencing or indeed have commenced our commissioning. Here is the approximate timeline included in the site above....
An important element of a SOA is that if approved, it is binding on all shareholders. The basic requirements for approval are:
- 75% of all sharesvotedare required to vote in favour of the scheme
- A minimum of 50% of all eligible shareholders must have voted
- Shares owned by the bidder or associates cannot be voted
What is the impact on the board and management of this process?
If the board agrees (assume unanimous) to an offer, then they will be obliged to vote any shares they each control in favour of the SOA. While I do not have information in front of me regarding the terms of issue of management and board incentive shares, it is usual practice for such shares to automatically vest in the event of a change of control transaction. This of course means that they immediately have possession of all the short and long term unvested shares under their contracts. By way of example for Tony Ottoviano this means he will have possession of shares valued at $31m based on the 2022 annual report data (page 48-49). Various other directors have options but no incentive shares from what I could see.I won't draw any conclusions on this matter.
Independent Expert Report
Our Board will appoint an independent expert to provide a judgement on whether the offer is "fair and reasonable". It will be quite interesting to see what assumptions in regard to lithium pricing etc as well as operating costs and capital expenditure will be made. Certainly the current commodity pricing is in my opinion quite opaque with no recent spodumene spot prices and pricing in China derivative markets versus contract pricing elsewhere not in accord. Also, there will need to be a detailed review of demand growth expectations in markets for EV sales and stationary storage which might bring to light some more realistic numbers than are typically seen in the press. A range of pricing will likely result also with a range of potential values for LTR. I would not be surprised if the numbers provide a significantly higher value than the offer, in which case it is likely to be found to be NOT "fair and reasonable". In that case the board could not recommend, and nor would the courts approve the scheme.
What if the SOA is voted down?
If more than 25% of eligible shares voted are cast against the deal, it will not be approved and the scheme will fail. In that case there will be a period of time (I think 4 months) during which ALB will not be allowed to launch a fresh offer. Perhaps another bidder will emerge and with the benefit of the "independent expert's" report be able to put a new offer to the board.Think another 3-4 months of hiatus. During that time it seems likely that institutions will mop up as much LTR stock as they can. But what I fear is that it would open the door to all the shorters and manipulators again during our commissioning and ramp up period. Without the benefit of the ALB offer waiting in the wings we would be forced to rely on the independent expert's report findings to support the price and we will have to hold onto our shares through a further period of volatility. I actually wondered to myself if the board strongly believes this will fail but as it will occupy the bidders and support the price in these last few months until commissioning, it serves a purpose of getting us to the starting line of cashflow.
Where could our share price go? In the worst case I can envisage the price being pushed down by shorters etc or as low as $2.00. With the absence of support from an ALB offer in the wings the value proposition to all holders and buyers might though be offset by the closing in timeframe for cash flows to commence and an increasing price for lithium chemicals. We would be exposed to potential shocks from any slippage in time to production, but perhaps equally benefit from any possible bringing forward of the production ramp up. In my opinion we have been put through the wringer before and largely withstood the assault of the short sellers. Therefore we can do it still now and the timeframe to cash flows is so much less now. I strongly believe even if this scheme becomes a reality, it will either be defeated by the independent experts findings and never be voted on, or if it does get to a vote, the power of our collective shareholdings will be sufficient to get past the 25% needed to defeat it. I also think the board with its advisers have thought of this and do not expect it to succeed. As it's all or nothing, that will have gained time during which we can get much closer to our holy grail of production.
It is also quite possible that non-ALB institutional shareholders will vote against it although I expect that ALB has done the phoning around to seek support for their offer price. We will be contacted by phone too in due course I expect, but I won't give them the time of day if I am.If TG said last time he addressed the issue that we will be getting $2.5bn per annum free cashflow after ramp up, I am surprised he is going along with this. Maybe, he will resign from the board and go rogue as a way of ensuring its defeat. That would be awesome! Ha ha ha...
Getting back to the earlier issue of each of us having our own estimate of value...I think we should look at @tunnes worksheet here and so many of us have a valuation in mind that exceeds this offer by ballparks.Our valuations are mentally no doubt based upon this being an operating business, not simply an unproven project with a great resource behind it.At this stage of proceedings we are almost in transition to that P/E style valuation and we know our team can deliver the goods.
I cannot Imagine the collective weight of our holding will not be enough to defeat this. But it is a long and tedious process and one hopes we never get to have the vote because of the expert's valuation. By the time it happens in December, we will already be commissioning the plant with ore from the pad and driving our declines underground, reaching the high grade ore and be so close to cashflow.I want to continue to be part of this enterprise and will not hand over my shares to ALB without a fight after we have taken all the risks to this point. There is such a lot of value still to be realised over the 20years plus mine life. That should rightly belong to us.
Regards
DF
(20min delay)