Chesser Resources (ASX: CHZ) shares have jumped 70% this morning on the back of a takeover offer from Fortuna Silver (TSX: FVI). All of which sounds absolutely great of course, Chesser shareholders get to cash out on the prospective value early on. Who could complain? Well, there is the one thing though. We don't, not really, know what the value of the offer is going to be until we see the reaction of the Fortuna share price to having made the offer. That's the thing about all share offers - they depend upon the value of the shares being offered. Now the betting would be that the Fortuna price won't decline all that much given the relative values of the two corporations. But as with fat ladies singing, it's not over until it actually is.
As to the background here Chesser has the Daimba Sud gold prospect. It's also a small company and working in West Africa is something that comes with substantial overheads. So, there's a value to merging that operation in with Fortuna's already extant operations n the same area. That's one side of the argument, the other is that small mining prospects do often gain from being enveloped by a larger corporation with greater financing ability. As long as a sensible premium is paid for that control - that is, the benefits of the merger are shared with both sets of shareholders - then why not such a move to greater economic efficiency?
Chesser Resources share price from ASX
There is the one thing though. The offer is an all share one. “Chesser shareholders will receive consideration of 0.0248 Fortuna shares per Chesser share, representing an implied value1 of A$0.142 per Chesser share.” Well, yes, that's nice, but what if the value of Fortuna shares change? Chesser is on the ASX. Fortuna on TSX. There're still some hours before the TSX opens and we can see the effect. So, the actual offer could be lower than suggested here. Or, of course, it could be higher.
Traditionally we would expect Fortuna stock to fall on open. But that does depend upon whether Fortuna holders think this a good deal or not. We'll find out, obviously, but it's not a certainty that the Chesser price will hold up.