Battle for CanniMed intensifies merger fever
Duelling takeover bids involving a trio of Canadian cannabis companies are the latest sign domestic producers are racing to bulk up before the country’s planned legalization of marijuana by next July.
On Monday, Alberta-based Aurora Cannabis Inc. announced its intention to launch a hostile takeover bid for Saskatchewan-based CanniMed Therapeutics Inc., another medical marijuana producer.
The hostile bid, an all-stock offer which Aurora says could be worth up to $24 per share for CanniMed, comes a week after Aurora says it proposed a friendly offer to CanniMed’s board.
CanniMed has instead announced a proposed all-share acquisition of its own for Ontario-based cannabis company Newstrike Resources Ltd. The two firms say that transaction would create a company with a market value of more than $500 million, with CanniMed shareholders owning about 65.5 per cent and Newstrike shareholders 34.5 per cent.
Newstrike, which has a cannabis-connected business partnership with Canadian music legends The Tragically Hip, is “uniquely positioned to be a leader in the massive emerging recreational market,” according to a presentation given Monday morning.
CanniMed president and chief executive Brent Zettl said his board determined that Newstrike was the “optimal partner”, while Jay Wilgar, chief executive of Newstrike, said they had been discussing the proposal for several months.
CanniMed said no formal offer by Aurora was made, and it is advising shareholders to take no action. Despite Aurora saying it has the support of 38 per cent of CanniMed’s investors for its deal, CanniMed said it only requires support from a simple majority to clinch the combination. The firms want the deal to close by early January.
Chris Damas, analyst and editor of the BCMI Report and the BCMI Cannabis Report newsletters, said that Aurora could ultimately end up taking CanniMed to court over its offer. “I don’t see them as backing down,” Damas said.
Aurora shares closed up 6.17 per cent Monday, at $5.85. The stock prices for CanniMed and Newstrike jumped 2.02 and 11.76 per cent, respectively, to $19.71 and 57 cents.
The attempts at deal-making could intensify as cannabis firms try to scare up the capital to serve the market. A survey of marijuana company executives by Ernst & Young highlighted the expectation that more mergers and acquisitions in the pot industry are in the works. “Many believe that consolidation is inevitable, leaving a few large players post-legalization,” the study said.