Aurora—CanniMed merger lights up marijuana sector
MARK RENDELL
After weeks of public enmity, six days of breakneck negotiations and an all-night push, Aurora Cannabis finally hammered out a deal to acquire CanniMed Therapeutics Inc. early Wednesday morning.
The $1 billion-plus takeover is the largest M&A move to date in Canada’s fast-growing cannabis sector and sets the stage for Aurora to challenge Canopy Growth Corp. for the industry’s top spot.
“We literally did not finish this thing until (Wednesday) morning. Nobody got any sleep (on Tuesday) night and that’s been pretty much par for the course for the last week,” said Cam Battley, Aurora’s chief corporate officer.
Under the new offer from Aurora, CanniMed shareholders will receive 3.4 Aurora shares for every CanniMed share, or a combination of cash and shares. That equates to around $47 a share, based on Aurora’s share price at the Wednesday close — nearly double the $24 offer Aurora made back in November when it launched its hostile bid. Aurora expects to issue between 72 million and 84 million shares to fund the deal, and will make up to $140 million cash available for CanniMed shareholders choosing the partial cash option.
The agreement comes after the companies spent the better part of two months trading blows and recriminations. Last Thursday, however, a CanniMed shareholder approached Aurora and managed to bring the antagonists to the negotiating table, said Battley.
“It was the right thing to do at the right time,” said Battley. “Aurora was pursuing our strategy and CanniMed was pursuing their strategy. It was only in the last few days that we were able to get together and come to an agreement on what we wanted to achieve together.”
The merger still needs to be finalized by three quarters of CanniMed shareholders. But with 51 per cent of shareholder support now locked down, including the support of CanniMed’s previously intransigent CEO Brent Zettl, the merger seems a sure thing.
The resulting company will be an industry giant, according to analysts. CanniMed has a funded capacity of 18,000 kilograms a year, while Aurora has more than 10 times that, coming from four facilities in Canada, one under construction in Denmark, and through its recent investment in The Green Organic Dutchman Holdings Ltd., which has facilities in Ontario and Quebec.
More than pure capacity, the acquisition gives Aurora the oldest brand name in the medical cannabis space, increased European access through a recent CanniMed deal in Belgium and a slate of coveted medical technologies.
“It will allow us to significantly increase our efforts with respect to medical cannabis,” said Battley. “What we’re really excited about is their encapsulation.”
“What these capsules allow patients to do is take (marijuana) in capsule form, so it gives the doctors a higher degree of confidence that the patients are getting the dosage that they’ve been recommended,” explained Greg McLeish an analyst with Mackie Research Capital.
The deal also gives Aurora the short-term capacity to compete with Canopy for provincial government supply contracts, said Jason Zandberg, an analyst with PI Financial Corp.
Left behind in all of this is Newstrike Resources Ltd., a third cannabis company. On Wednesday the recreational marijuana-focused firm, backed by the Tragically Hip, was dropped unceremoniously from a merger bid with CanniMed. It received a $9.5-million termination fee.
We literally did not finish this thing until (Wednesday) morning. Nobody got any sleep.