HEXO plans to buy Ontario pot producer
Quebec cannabis firm in $263M deal to take over Newstrike
TORONTO — The cannabis company backed by members of the Tragically Hip band has agreed to a friendly takeover by Quebecbased HEXO Corp. in an all-share transaction valued at $263 million, sending shares of both companies higher.
The companies say in a joint statement the deal would give HEXO the capacity to produce about 150,000 kilograms of cannabis annually and to realize $10 million of annual synergies.
HEXO chief executive Sebastien St-Louis, who co-founded the company, said the addition of Newstrike would to take HEXO to the next level on its journey “to become one of the largest cannabis companies in the world.”
Shares of HEXO in Toronto were up nearly six per cent in afternoon trading to $7.83 after the deal was announced. On the TSX Venture exchange, Newstrike’s stock was up more than 11 per cent in afternoon trading to 50 cents a share.
The deal is the latest sign of consolidation in Canada’s cannabis sector. In December, cannabis company Aleafia announced a deal to acquire licensed producer Emblem Corp. Last year, Aurora Cannabis Inc. acquired rivals MedReleaf Corp. and CanniMed. In November 2017, CanniMed had announced an all-stock deal to acquire Newstrike. However, Aurora later launched a hostiletakeover bid of CanniMed and after a months-long battle, the two companies signed a friendly deal, abandoning the plans to acquire Newstrike.
As part of the deal announced Wednesday, Newstrike shareholders are being offered 0.06332 of a HEXO common share in exchange for each common share held. Based on the value of HEXO shares at the close on Tuesday, the offer would be worth nearly 47 cents per share. The transaction is unanimously supported by the directors of both companies but requires approval by Newstrike shareholders.
RBC Capital Markets is acting as the financial adviser to Newstrike, the latest evidence of Canada’s largest banks warming up to the pot sector. Newstrike has the right to accept a superior proposal in certain circumstances, with HEXO having the right to match any proposal within five business days.