Q: Good Afternoon 5i Team,
Alkane Resources (an Australian company) is in the process of taking over Mandalay Resources in an all-stock deal. If you were a shareholder of Mandalay, would you take the Alkane shares or would you sell the Mandalay shares before the deal closes? Also, Alkane has applied for a TSX listing. Is there a risk that their application will be rejected and that Canadian investors will be unable to sell their Alkane shares.
Thanks for your expert opinion.
Alkane Resources (an Australian company) is in the process of taking over Mandalay Resources in an all-stock deal. If you were a shareholder of Mandalay, would you take the Alkane shares or would you sell the Mandalay shares before the deal closes? Also, Alkane has applied for a TSX listing. Is there a risk that their application will be rejected and that Canadian investors will be unable to sell their Alkane shares.
Thanks for your expert opinion.
5i Research Answer:
No listing is guaranteed, but we would not expect any problems here. It is not the first Australian company that has taken over a Canadian company. Generally speaking, merging two small companies is the right move from a capital markets perspective. Sector investors will pay more for a larger company, and the cost of capital can decline. In this case, market cap will go above $1B, which can be a significant level in order to attract new investors. Being Australian, we do not know Alkane that well, but from our analysis we would be comfortable holding this post-deal. There are synergies and other benefits to the merger, and the combined company should have decent potential overall.