Canada's Biggest Deal: Aurora Cannabis to buy CanniMed in deal valued at $1.1B


After months of negotiations that started with a hostile takeover bid, two of Canada's major marijuana producers have agreed to the biggest deal in the country's booming pot sector.

Aurora Cannabis will buy rival producer CanniMed Therapeutics Inc. for $1.1 billion in what the two companies described it as a "friendly" deal.

 


(Terry Booth)

 

Terry Booth, chief executive officer of Aurora said, "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,".

 

It all started in mid-November when Aurora made its first attempt to takeover CanniMed with a bid that valued the company’s shares for up to $24, however, CanniMed argued that the offer was too low given the wild upward swing in marijuana stocks in recent months.  The initial offer was not good enough for CanniMed leading to exchange of harsh words and they even filed a lawsuit against Aurora, claiming it had conspired to injure the company's economic interests.

Based on an implied Aurora share price of $12.65 and an exchange ratio that would see CanniMed shareholders receive 3.4 Aurora shares or a combination of cash and shares for each CanniMed share, the companies said the new offer would amount to $43 per share, or $1.1 billion.

 

With the CanniMed acquisition, Aurora will become one of the country's biggest marijuana producers by market capitalization.  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.  Rival producer Aphria Inc. earlier this month announced a deal to buy B.C. based Broken Coast Cannabis Inc., a transaction valued at $230 million in cash and stock.

Cam Battley,  Aurora's chief corporate officer said,  "It probably creates an expectation that there will be more consolidation in the sector,".

Aurora has more than 450, while CanniMed has more than 200 employees, said Battley. Aurora is expected to ramp up hiring rather than cut jobs as per Battley.  

CanniMed has also demonstrated success in developing and monetizing value-added products, in fact 57 per cent of the latest quarter's sales came from oils rather than dried flower.  There is a growing interest in the drug's use for medical purposes and with CanniMed’s capabilities it can definitely help Aurora to develop pill-form cannabis.

CanniMed was supposed to acquire Newstrike Resources Ltd., whose shareholders had already voted in favour of a takeover by CanniMed.  Brent Zettl, CanniMed chief executive, said he was angling for a three-way deal that would include Newstrike as well.

"I think there is still some open-mindedness ... It's just that we didn't get to a commercial agreement on that."

A pay of  $9.5-million break fee will be paid by CanniMed to Newstrike as a result of its decision.

Jay Wilgar, Newstrike's chief executive, said  "Newstrike has received its sales license, which is a huge step,".

"We are in a very strong position right now, as a standalone."


 

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Kat Rae Kat Rae
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25 Jan 2018


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