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AURORA BUYS RIVAL CANNIMED IN $ 1B DEAL.
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 i n November when it launched its hostile bid. Aurora expects to issue between 72 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, t he 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 ten 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. “It further strengthens ( Aurora’s) ability to export product into the medically acceptable markets abroad.”
The deal also gives Aurora the short-term capacity to compete with Canopy for provincial government supply contracts in the lead- up to recreational legalization this coming summer, said Jason Zandberg, an analyst with PI Financial Corp.
“A u r o r a Sky (an 800,000- square- foot facility currently under construction) is a fantastic facility, but it’s not going to be online and producing product en masse until after the initial rec sale starts. So this provides Aurora with a bit of a bridge,” said Zandberg.
Left behind in all of this is Newstrike Resources Ltd., a third cannabis company, which had been in merger discussions with CanniMed s i nce before Aurora’s hostile move. Aurora had strongly opposed the Newstrike deal, and on Wednesday the recreational marijuana-focused company, backed by the band the Tragically Hip, was dropped unceremoniously. It did, however, receive a $ 9.5- million termination fee.
“It wasn’t a reflection on them being a bad company, they just didn’t fit with what Aurora’s needs were,” said Zandberg, noting that Aurora wanted a well- established company with facilities ready to be certified for export into European markets.
“Newstrike just didn’t fit that bill. It wasn’t a potential global brand. The Tragically Hip are very much a Canadian brand, and I think that’s got value,” said Zandberg. “I actually do think that someone else may take a run at Newstrike, or they could make a go of it on their own and have a nice niche.”
Even as Newstrike shares plunged nearly 20 per cent on Wednesday, the company was quick to note in a press release that it would be deploying $14.1 million received from CanniMed (including a $9.5 million termination fee) to bring its greenhouse in Niagara into production ahead of schedule.
It also later announced it was raising $ 50 million through a bought deal agreement led by INFOR Financial Inc. and Cormark Securities Inc., issuing shares at $1.32.