Vote postponed

CANNIMED TO HOLD TALKS WITH AURORA AHEAD OF KEY SHAREHOLDER MEETING

Trading in shares of CanniMed Therapeutics Inc. was halted for two-anda-half hours on Thursday morning, as the company announced it was postponing a key shareholder meeting in order to discuss a potential transaction with Aurora Cannabis Inc.

The two cannabis companies have been warring since November, when Aurora launched a hostile takeover bid for CanniMed backed by several significant CanniMed shareholders.

Thursday’s apparent thaw sent shares of both companies higher, with CanniMed closing up 17.18 per cent and Aurora up 5.28 per cent in Toronto.

“There is no certainty that any such discussion will result in an agreement among the parties,” said a press release from CanniMed, adding that it wouldn’t comment further on the issue until next week.

CanniMed shareholders were set to vote this coming Tuesday on a separate deal to acquire Newstrike Resources Ltd. the recreational cannabis company backed by the band the Tragically Hip. That vote has been moved back until Thursday.

Aurora — which has already signed lock-up agreements with shareholders who control 38 per cent of CanniMed’s stock — has been urging CanniMed to abandon its pursuit of Newstrike. As recently as Tuesday, Aurora’s chief corporate officer Cam Battley told the Financial Post that his company will not move forward with the CanniMed acquisition unless it drops the Newstrike deal.

Both CanniMed and Aurora have agreed to a “standstill” until midnight on Sunday. During that time, neither will solicit shareholder proxies for CanniMed’s upcoming vote on the Newstrike merger and Aurora will not acquire any additional shares in CanniMed. The firms also agreed not to attempt to negotiate other transactions during the standstill.

With CanniMed’s share price surging in recent months, it’s likely that Aurora will have to make a new offer in the coming days if it wants to entice CanniMed shareholders, according to analysts. In November, when Aurora’s hostile bid was launched, the offer price for CanniMed shares was $24.

“At this point why would you sell at $24 when the value has gone up so much higher?” said Russell Stanley an equity analyst with Echelon Wealth Partners. With so much volatility in the market, it’s hard to say what price might be acceptable to CanniMed shareholders, Stanley said. “But it’s got to be better than the current share price,” he added.

Chris Damas at BCMI Research, echoed this, estimating Aurora will have to raise its offer to at least $30. “But don’t forget it’s a paper deal, so it’s not like Aurora is going to shovel out cash here,” said Damas.

As part of the standstill agreement, Aurora has said it will not announce any changes to the $24-per-share offer until after midnight on Sunday, unless both companies agree.

Aurora could be willing to re-offer at a higher price not only because its own stock is up significantly, but also because CanniMed offers key strategic assets that Aurora needs, said Damas.

“They have many medical studies underway with Canadian universities … and CanniMed already has soft gel caps and a machine that can turn out thousands of gel caps,” he said.

CanniMed also has a large facility in Michigan, said Damas, that is unused but could be converted into a prime U.S. asset if the U.S. government stops its recently redoubled opposition to cannabis legalization.

What all of the activity on Thursday means for Newstrike is not clear. It comes a day after Newstrike shareholders voted overwhelmingly to support the CanniMed takeover. And while trading of the company’s shares were halted on Thursday morning as well, their price shot up after trading resumed, ending the day 25-per-cent higher.

Stanley suspects a new offer from Aurora will likely have to include Newstrike resources. Damas, however, is not sure. “It leaves them at the altar,” he said of Newstrike. “I’d guess they’re going to have to go around looking for more funding to execute on their expansion plans.”