Battle grows between Aurora, CanniMed
Aurora goes hostile as CanniMed bristles at offer to create $3B cannabis giant
We can understand why a deal with CanniMed makes sense for Aurora but it makes no sense for our shareholders. BRENT ZET TL, President and CEO, CanniMe d
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 CanniMed Therapeutics Inc., which has bristled at the offer and cultivated a different deal with another competitor. CanniMed 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 CanniMed shareholders to tender their stock for its bid, which would create a cannabis company worth more than $3 billion in mar- ket 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 Newstrike Resources Ltd., offering 33 of its own shares for every 1,000 shares of Newstrike. 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 CanniMed 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 deal-making 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.”
A takeover bid circular will be sent via mail to CanniMed shareholders, Aurora said.
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 CanniMed 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.”
On Friday, Aurora said it had applied to the Financial and Consumer Affairs Authority of Saskatchewan and the Ontario Securities Commission to obtain an order reducing the minimum deposit period for the offer to allow CanniMed’s shareholders to consider its offer concurrently with the Newstrike Resources transaction.
“CanniMed shareholders are advised, however, that there is no assurance such relief will be obtained,” Aurora added.
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, however, said Friday that it is “considering the appropriateness and legality of the irrevocable lock up agreements that Aurora obtained from shareholders in connection with the Hostile Bid.”
“Such lock-up agreements, together with Aurora’s attempts to have the securities regulators shorten the 105 day minimum deposit period for the Hostile Bid, are unfair and coercive to the Company’s other shareholders and are an attempt to preclude such Company shareholders from having an effective voice in choosing the Newstrike transaction,” CanniMed said, adding that it has not received a copy of Aurora’s application to the securities watchdogs, but that it “intends to vigorously oppose it.”
CanniMed has struck a special committee of independent directors to review Aurora’s offer.