Marijuana companies reach $1.1B friendly takeover deal
After an acrimonious, months-long takeover battle, Aurora Cannabis Inc. has struck a friendly deal valued at $1.1 billion to buy rival licensed producer CanniMed Therapeutics Inc., marking the biggest deal yet in Canada’s marijuana sector.
The agreement announced Wednesday comes after executives at both companies traded harsh public criticism and CanniMed filed a lawsuit against its suitor, alleging it conspired to harm its economic interests.
But following long days of negotiation after entering talks last week, the two rivals were able to agree on a deal that now includes both shares and cash, a sweeter deal than the earlier all-stock transaction offered in November.
“We are very pleased to have come to terms with CanniMed on this powerful strategic combination that will establish a best-in-class cannabis company with operations across Canada and around the world,” Aurora chief executive Terry Booth said in a statement.
CanniMed had argued that Aurora’s earlier all-stock offer valued at up to $24 per share for the company was too low, given the wild upward swing in marijuana stocks in recent months.
Wednesday’s deal is the latest in a wave of consolidation in the sector ahead of legalization expected this summer.
Rival producer Aphria Inc. earlier this month announced a deal buy B.C. based Broken Coast Cannabis Inc., a transaction valued at $230 million in cash and stock.
“This is by far the largest M&A transaction to occur in the cannabis space – so far,” said Russell Stanley, special situations analyst at Echelon Wealth Partners.
“The largest players have strong share prices to use as acquisition currency, and can afford to be aggressive on the M&A front. Scale might be one driver, but further M&A may also be powered by geographic or product development needs.”
Prior to the Aurora-CanniMed deal, the largest deal had been Canopy Growth’s 2016 friendly all-stock deal to acquire Mettrum Health Corp. valued at $430 million.
Under the agreement announced Wednesday, CanniMed shareholders will receive 3.4 Aurora shares or a combination of cash and shares for each CanniMed share they hold.
Based on an implied Aurora share price of $12.65 and the 3.40 exchange ratio, the companies said the new offer would amount to $43 per share.
However, Aurora shares closed at $14.79 on the Toronto Stock Exchange on Tuesday and CanniMed shares closed at $37.51, making the offer worth currently worth about $50.29 and the value could bounce around significantly before the deal closes due to volatility in the marijuana sector. CanniMed shares shot up another 17 per cent in Wednesday trading to $43.93.
The total amount of cash available under the deal is capped at $140 million. Assuming maximum cash elections, each CanniMed shareholder would receive $5.70 in cash and 2.95 Aurora shares.
CanniMed chief executive Brent Zettl said the deal was a testament to the team at CanniMed.
This transaction clearly confirms that the company has been highly successful in becoming a preeminent global leader in the medical cannabis industry,” Zettl said.
The new offer and the transaction are subject to customary closing conditions, including Competition Act approval.
The deal also means CanniMed will abandon its plans to acquire Newstrike Resources Ltd., whose shareholders had already voted in favour of a takeover by CanniMed.
CanniMed will pay a $9.5-million break fee to Newstrike as a result of its decision. Newstrike’s shares were down 18 per cent at $1.49 in Wednesday trading.
Newstrike’s chief executive Jay Wilgar said that while the view may be that his company was “left at the altar”, this was a “mutual decision” and things have changed since its deal with CanniMed was announced.
“Newstrike has received its sales license, which is a huge step… We are in a very strong position right now, as a standalone,” he said.
He added that the company looks forward to putting the capital received from CanniMed towards its getting its new Niagara greenhouse online sooner, and accelerating the rollout of its Up Cannabis brand.
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