CanniMed bristles at offer
Aurora Cannabis Inc. launches first major hostile take over bid in marijuana industry
Aurora Cannabis Inc. has launched the first major hostile takeover in the short history of Canada’s marijuana industry.
Alberta-based Aurora had proposed an all-stock deal earlier this month worth up to $24 for each share of Saskatchewan-based medical marijuana company Can ni Med Therapeutic s Inc ., which has bristled at the offer and cultivated a different deal with another competitor. Can ni Med also urged its shareholders Friday to take no action in response to Aurora’ s“unsolicited” offer.
But on Friday, Aurora took the next step in the tug-of-war by going hostile, saying its offer is on the table until March 9. Aurora also invited Can ni Med shareholders to tender their stock for its bid, which would create a cannabis company worth more than $3 billion in market value.
“Aurora continues to believe that the combination of the two companies is extremely compelling, in the best interest of both CanniMed’s and Aurora’ s shareholders, and will accelerate growth and shareholder value creation for the combined entity, further extending Aurora’s leadership position within the global cannabis sector ,” the company said in a release.
A note this week from Echelon Wealth Partners said the hostile takeover bid is “what we believe to be the first in the space.”
CanniMed tried to poke holes in the move Friday, arguing that Aurora’s offer was based on an “inflated” price for Aurora shares.
“The Aurora management team has not demonstrated an ability to execute competently and consistently and there is serious concern that the Aurora share price will drop just as quickly as it has risen,” Brent Zettl, president and chief executive of CanniMed, said in a release.
Meanwhile, CanniMed has launched a friendly, all-stock bid of its own for New strike Resources Ltd., offering 33 of its own shares for every 1,000 shares of New strike. Toronto-based Newstrike is the parent company of licensed marijuana producer Up Cannabis Inc. The companies are aiming to close the deal by January, pending shareholder approval.
“The only certainty for Can ni Med shareholders is in the attractive and accretive Newstrike acquisition before them,” Zettl said. “We can understand why a deal with CanniMed makes sense for Aurora but it makes no sense for our shareholders.”
The dealmaking precedes the expected legalization of recreational marijuana in Canada by next July, which will unlock a massive new market for cannabis companies to enter.
Within the sector, it is anticipated there will be more consolidation as companies try to scale up to meet demand. Earlier this month, U.S.-based alcoholic beverage giant Constellation Brands Inc. paid about $245 million for a 9.9 per cent stake in Smiths Falls, Ont.-based Canopy Growth Corp ., Canada’s leading licensed producer of cannabis.
In pushing its deal, Aurora said it has support for the offer in the form of “lockup agreements already in place with shareholders holding 38 per cent of CanniMed shares, including CanniMed’s 3 largest shareholders.”
Aurora said CanniMed’s intention to buy Newstrike, which has a business partnership with Canadian music legend The Tragically Hip ,“is highly conditional and oppressive to Can ni Med shareholders in light of Aurora’s proposed offer.”
“The Newstrike Resources Offer requires CanniMed shareholders to approve the transaction,” it added. “Given that 38 per cent of CanniMed shareholders have contractually agreed to support the Aurora Offer and to vote against any proposed action by the CanniMed Board, the Newstrike Resources Offer is a highly conditional proposition with significant uncertainty.”
Aurora has highlighted that its offer comes with some caveats, such as CanniMed’s proposed acquisition of Newstrike “shall not have proceeded, and shall have been terminated.”
CanniMed has struck a special committee of independent directors to review Aurora’s offer.