Aphria investors divided over hostile bid
Ontario pot grower spurns unsolicited offer from Ohio firm, calls it ‘exploitative’
Shareholders of cannabis company Aphria Inc. appear to be divided over U.S. retailer Green Growth Brands’ attempted hostile takeover of the Leamington, Ont.based company with some painting the bid as “undervalued” and “futile,” while others seeming to have lost faith in Aphria’s management and are welcoming change.
“We believe that GGB was simply trying to take advantage of a significant and untimely sell of the stock and genuinely would not have been able to extract the full value of Aphria that we believe still exists within the company,” said Steve Hawkins, president and CEO of Horizons ETFs Management Inc, the largest public institutional holder of Aphria stock. The company has a number of passively managed cannabis funds that cumulatively own about 6.2 million Aphria shares, or 2.5 per cent of the Leamington, Ont., grower.
Aphria released a scathing statement Wednesday against Green Growth’s hostile bid, rejecting it and calling it “exploitative.”
“Regardless of their brazen attempts to suggest otherwise, GGB is asking Aphria shareholders to accept a substantial discount of their shares as well as delisting from both the TSX and NYSE resulting in a vast dilution of their ownership in Aphria,” the company’s independent board chairman Irwin Simon said in a statement.
Ohio-based Green Growth, with a market value of roughly $920 million, is bidding for Aphria, which has a market value more than three times that amount, in an all-stock offer of 1.5714 Green Growth shares for each Aphria share.
The bid was announced in December, just weeks after short-sellers questioned the value of Aphria’s Latin American assets, and accused a number of company insiders — including outgoing CEO Vic Neufeld — of engaging in self-dealing through transactions that resulted in the purchase of the company’s Latin American holdings.
Aphria recently reshuffled its upper management, announcing the exit of Neufeld and co-founder Cole Cacciavillani, while tasking former alcohol industry executive Jakob Ripshtein and food industry magnate Simon to manage the company during the transition.
“We’re optimistic about the company. It is one of the bigger, and better capitalized licensed producers and in the long term they are going to learn from these mistakes and improve corporate governance,” said Jason Wilson, president of Budding Equity Asset Management Inc., which manages the ETFMG Alternative Harvest ETF (MJ), a passive Canadian cannabis ETF. The fund began investing in Aphria in the summer of 2018, when the company had divested its U.S. assets, and now owns almost three million Aphria shares.
Wilson says his fund would have to drop Aphria shares if Green Growth’s bid is successful, because they’re not keen on companies with U.S. operations. “From a purely business perspective, it’s beneficial to us that Aphria’s structure remains as is,” he said.
Other major institutional shareholders appear to be supportive of Green Growth’s bid for Aphria.
“Look, shareholders are frustrated with this company and the direction of the company. When you don’t even have a CEO in place, it’s hard to defend against the bid,” said Greg Taylor, chief investment officer of Purpose Investments, whose actively managed marijuana fund took an even larger stake in Aphria as recently as Dec. 31, according to data from Bloomberg.
“The sector is evolving into more of a consumer packaged goods industry. This deal, given Green Growth’s expertise in retail, could be a nice way for Aphria to transition out of sheerly cultivation, and expand their product offerings internationally,” Taylor said.
Green Growth is backed by the Schottenstein family, best known for the retail brands DSW and American Eagle.
Green Growth did not respond to a request for comment. It saw its stock dip by more than five per cent, while Aphria’s stock price plunged more than eight per cent, as news of the bid rejection broke.
Green Growth’s formal offer is due to expire on May 9.