Lithium Power International (ASX: LPI) shares are up 27% today on the back of the offer from Codelco coming through. The take out offer is at 57 cents, which is higher than it was rumoured to be. Thus the rise in the share price here to match that actual, not just rumoured, offer. Which is nice, obviously. But we’d also suggest this is why we shouldn’t allow state enterprises, state companies, to be running anything at all. Codelco got stampeded into raising its offer by some 15%. At least that’s our somewhat cynical read on what has happened here and all over nothing but a leak to the press.
The actual offer itself: “LPI has entered into a binding scheme implementation deed with Codelco under which Codelco will acquire 100% of the share capital of LPI by way of a scheme of arrangement. Under the terms of the Scheme, LPI shareholders will receive A$0.57 in cash per LPI share. The consideration payable under the Scheme implies a fully diluted equity value for LPI of~A$385 million1 and represents a significant premium of:
o 119% to the undisturbed closing share price of A$0.26 per LPI share on 26 September2023, being the Undisturbed Date; and
o 136% to the undisturbed 30-day VWAP of A$0.242 per LPI share up to and including the Undisturbed Date.”
Well, OK, and very nice. But we do think that Codelco were played here, stitched like a kipper.
Lithium Power International share price from Google Finance
As we reported on Lithium Power: “And yes, they confirm that talks are at the 50 cents a share level. Which, given that Lithium Power is currently at 41 cents might be something we’d like to bet upon. It would be a bet, of course, not an investment, but it is there if we want it. If we were terribly cynical we’d start to wonder who leaked that information to Bloomberg. For one way to make sure that Codelco considers a nice high price for the take out is to push the share price up so that Codelco has to pay a nice, high, price to be able to complete. But that would be cynical, to think that way.”
We are cynics, we do think that way. That 7 cents above the $0.50 level we think is driven purely by that convenient leak to the press that the talks were even happening. That’s a very effective and profitable leak to the press of course.
This is also why governments should never be let anywhere near anything industrial or financial. There were no other reasonable buyers for LPI other than Codelco - given the manner the Chilean state has stated it wants to control strategic mining operations. But it still managed to get forced into upping the offer by a trivial and near transparent ploy. Sure, this is great for LPI shareholders but for the taxpayers, a grand lesson in why not to allow governments to spend our money.