Shares of Aphria (APHA) spiked in Friday trading after U.S. cannabis retailer Green Growth said it would make a hostile takeover bid for Aphria valuing the Canadian pot producer at $2.1B.
TAKEOVER OFFER: On Thursday, Xanthic Biopharma, doing business as Green Growth Brands, announced a hostile takeover offer for Aphria in an all-stock deal valuing the company at C$2.8B, or $2.1B. Green Growth said it would offer 1.5714 shares for each Aphria share, representing a premium of 45.5% over Aphria’s closing price on the Toronto Stock Exchange on December 24. The offer is based on a valuation of C$7 per Green Growth share. Green Growth said its advisers engaged Aphria's board prior to announcing its intention to take the offer directly to shareholders in an attempt to reach a friendly deal that included a "very short" exclusivity period to allow both parties to seriously consider the deal, a full go-shop provision and the "preservation of Aphria's management and commitment to board representation at the combined company." Green Growth also said it offered, in a friendly deal, to invest C$50M in equity at an Aphria per share value of C$11.00. "We believe our offer will create value for both Aphria and Green Growth shareholders. We are confident that the significant premium we are offering and the opportunity to participate in the growth of a stronger, combined company are so compelling that we are taking our offer directly to Aphria's shareholders. Together, we can unleash synergies between our teams, assets and geographies, forming a combined enterprise that will accelerate our collective growth strategies in Canada, the U. S. and overseas," said Peter Horvath, CEO of Green Growth. Horvath also told Reuters that Green Growth also arranged a call with Aphria's board that included a presentation laying out the offer, but the company did not hear back from Aphria.
APHRIA'S RESPONSE: Aphria responded to the hostile offer, saying Green Growth's "per-share offer is based on a hypothetical valuation of its own shares, with no relation to the current price." The company also confirmed that GGB's management presented the offer to Aphria on December 27, but "immediately went public with its proposal, less than six hours later and after the market closed on the same day." Irwin Simon, Aphria's new independent chairman and the founder of Hain Celestial (HAIN), said the board believes GGB is "attempting to acquire the company through a highly conditional offer at a significant discount to its current and future value." He added, "While we appreciate GGB's interest in the value we have created at Aphria and our significant growth prospects, their proposal falls short of rewarding our shareholders for participating in such a transaction. Further, the proposed offer is quite risky given GGB's condition to complete a brokered financing at a price that is more than double the recent average of their share price, as a key term to the proposal. The Board has determined that the GGB proposal, as it currently stands, significantly undervalues the company." As previously disclosed, Aphria holds a passive investment in Green Acre Capital Fund II, which the company understands has invested in numerous emerging cannabis companies, including GGB.
WHAT'S NOTABLE: On December 18, Andrew Left's Citron Research mentioned the stock positively, saying shares could be above $8 before the end of the year. The short-selling focused investor said at the time that he expects a "major partnership or total buyout soon" for Aphria. In a report titled "Everything has changed: The big 5 Canadian cannabis companies have achieved 'Platform Status,'" Citron Research noted that "in a dramatic change, Trump announced on Friday that marijuana reform ally Mick Mulvaney will replace marijuana opponent John Kelly as his acting White House chief of staff." "Even though federal legalization is around the corner, it will still take at least 18-24 months for the law to change, which makes the Canadian Cannabis LPs the only game in town" in the near-term, Citron contended. Additionally, Citron said it believed Aphria "has a shot at increased value through becoming the next platform company or being taken out entirely." The stock "can easily rise 40% from here by the end of the year," the report said. Earlier this month, the short seller said via Twitter that "[Aphria] is compelling on all metrics. Cdn footprint too large to ignore. Look past the noise- stock should see US$10."
OTHER CANNABIS STOCKS: Other publicly traded companies in the space include Aurora Cannabis (ACB), Tilray (TLRY), CV Sciences (CVSI), CannTrust Holdings (CNTTF), Canopy Growth (CGC), Cronos Group (CRON), General Cannabis (CANN), India Globalization Capital (IGC), ICC International Cannabis (KNHBF), MedMen Enterprises (MMNFF), Biome Grow (ORTFD), MediPharm Labs (MLCPF), Indiva (NDVAF), OrganiGram (OGRMF), Innovative Industrial Properties (IIPR) and KushCo (KHSB).
PRICE ACTION: Aphria rose over 12% to $6.25 in morning trading.
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