Aurora makes all-share of­fer for med­i­cal pot firm Can­niMed

Deal would cre­ate a $3B-plus com­pany serv­ing ap­prox­i­mately 40,000 pa­tients

Montreal Gazette - - FINANCIAL POST - GEOFF ZOCHODNE Fi­nan­cial Post gzo­chodne@post­media.com Twit­ter.com/ge­of­f­zo­chodne

Van­cou­ver-based Aurora Cannabis Inc. said Tues­day that it has made an all-share of­fer for Can­niMed Ther­a­peu­tics Inc., a fel­low Cana­dian med­i­cal mar­i­juana com­pany.

Can­niMed share­hold­ers will be en­ti­tled to re­ceive up to $24 per Can­niMed share — a premium of ap­prox­i­mately 56.9 per cent over their Tues­day clos­ing price of $15.30 — or 4.52586207 Aurora shares, based on the 20-day vol­ume weighted av­er­age price of Aurora, the com­pany said in a re­lease.

How­ever, based on the $6.41 clos­ing price of Aurora shares on Tues­day, this would ac­tu­ally work out to 3.74415 Aurora shares for each Can­niMed share, ac­cord­ing to the re­lease. At Tues­day’s prices, Can­niMed share­hold­ers would hold ap­prox­i­mately 16 per cent of the is­sued and out­stand­ing shares of Aurora if the deal closes.

“Aurora and Can­niMed are a great fit, truly com­ple­men­tary, and I am con­vinced we can gen­er­ate even greater value by com­bin­ing the two com­pa­nies and align­ing our ef­forts strate­gi­cally,” said Terry Booth, chief ex­ec­u­tive of Aurora, in a press re­lease.

“Aurora has the man­age­ment ex­per­tise, cap­i­tal mar­kets strength, dis­tri­bu­tion chan­nels, brand power and growth prospects to suc­cess­fully in­te­grate Can­niMed into Aurora — the fastest-grow­ing cannabis com­pany with the sec­tor’s most ex­cep­tional ex­e­cu­tion track record.”

Aurora said in a re­lease that it had de­liv­ered its of­fer to Can­niMed’s board of di­rec­tors on Mon­day, seek­ing “a mu­tu­ally agreed upon com­bi­na­tion with Can­niMed.” Ac­cord­ing to the re­lease, Aurora re­quested a re­sponse be­fore the week­end, “fail­ing which, Aurora in­tends to com­mence a for­mal takeover bid for Can­niMed.”

Aurora also said it has “ir­rev­o­ca­ble lock-up agree­ments” with about 38 per cent of Can­niMed share­hold­ers.

“Un­der the lock-up agree­ments, the locked-up share­hold­ers are pre­cluded from ten­der­ing or vot­ing any of their Can­niMed com­mon shares in favour of any other ac­qui­si­tion pro­posal re­lat­ing to Can­niMed and are re­quired to vote against other ac­qui­si­tion pro­pos­als or ac­tions which might pre­vent, de­lay or frus­trate Aurora’s pro­posal,” said a re­lease.

Based on mar­ket value, Aurora said the deal would cre­ate a more than $3-bil­lion cannabis com­pany that would serve ap­prox­i­mately 40,000 med­i­cal mar­i­juana pa­tients.

Cana­dian mar­i­juana stocks have been on a tear re­cently — gain­ing in value ahead of the fed­eral gov­ern­ment’s July 2018 tar­get date to le­gal­ize recre­ational cannabis — and shares of Van­cou­ver-based Aurora are no dif­fer­ent. The com­pany’s shares were up 7.37 per cent for the day on Tues­day, as well as 120.27 per cent over the past month, and 134.8 per cent for the year.

The deal fol­lows U.S.-based bev­er­age gi­ant Con­stel­la­tion Brands Inc. pay­ing ap­prox­i­mately $245 mil­lion for a 9.9-per-cent stake in Smiths Falls, Ont.-based Canopy Growth Corp., Canada’s largest li­censed pro­ducer of med­i­cal mar­i­juana. The trans­ac­tion, viewed as a game-changer for Canada’s cannabis in­dus­try by some, could also al­low Con­stel­la­tion, whose brands in­clude Corona beer and Kim Craw­ford wines, to dou­ble its stake at the same price.

Aurora re­ported its lat­est re­sults last week, record­ing a 169-per-cent in­crease in rev­enue for its fis­cal first quar­ter, to $8.2 mil­lion. The com­pany booked net in­come of $3.6 mil­lion for the three months ended Sept. 30, up from a $5.6-mil­lion loss for the same stretch in 2016.

Aurora said it had sold 889,965 grams and gram equiv­a­lent of cannabis for the quar­ter, up 18 per cent from the three months that pre­ceded it.

“What this does, is it gives us ad­di­tional, sig­nif­i­cant strength on the med­i­cal side,” said Cam Bat­t­ley, ex­ec­u­tive vice-pres­i­dent at Aurora, in an in­ter­view.

Can­niMed Ther­a­peu­tics could not be im­me­di­ately reached for com­ment.

Mean­while, Canopy Growth. re­ported Tues­day that it took a $1.6-mil­lion loss in its fis­cal sec­ond quar­ter, a slip that comes as the com­pany gears up for Canada’s planned le­gal­iza­tion of recre­ational cannabis and basks in a ground­break­ing deal with a U.S.-based al­co­hol gi­ant.

Canopy re­ported a 107-per-cent in­crease in rev­enue for its sec­ond quar­ter, to $17.6 mil­lion, but a net loss of $1.6 mil­lion, or one cent per share. Canopy, Canada’s largest med­i­cal mar­i­juana pro­ducer, had re­ported a net gain of $5.4 mil­lion, or five cents per share, for the same pe­riod last year.

But Bruce Lin­ton, the com­pany’s chief ex­ec­u­tive, told a con­fer­ence call Tues­day morn­ing that the events that have taken place since the end of the quar­ter, in­clud­ing a deal to sell a stake to Con­stel­la­tion Brands, have over­shad­owed the quar­terly re­sults.

“It seems that, with our com­pany and maybe this sec­tor gen­er­ally, the sub­se­quent events are greater than the prior pe­riod’s to­tal events,” Lin­ton said.

The quar­terly dip was driven in part by in­creased ex­penses.

GAVIN YOUNG

Van­cou­ver-based Aurora’s med­i­cal pot fa­cil­ity is seen near Cre­mona, Alta. Aurora is seek­ing a com­bi­na­tion with Can­niMed amid an up­swing in mar­i­juana stocks ahead of recre­ational pot’s July 2018 le­gal­iza­tion.

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