Sean Mason, SmallCapPower.com | Nov 23, 2017 00:41
SmallCapPower | November 22, 2017: CanniMed Therapeutics Inc. (TSX:ACB ), is in a dilemma as the board members are not satisfied with the offer price. But Aurora has got support from 38% of the shareholders of CanniMed for the acquisition. On the other side, CanniMed has a different plan and is in discussions with Newstrike Resources Ltd. (V:HIP) to create a premier global cannabis company.
This article gives an overview of the two deals along with synergies of each:
Aurora acquiring CanniMed
On Nov. 14, Aurora Cannabis announced plans to acquire CanniMed Therapeutics for $24 per CanniMed share, which represents a premium of ~56.9% over the closing price of CanniMed shares on Nov. 14, 2017. But the day after this announcement, CanniMed acknowledged the offer, saying that it had not received any formal written offer from Aurora Cannabis. Furthermore, CanniMed had cautioned that the share consideration is inflated, as it takes into account the recent surge of 125% over Aurora’s closing price on the TSX over the preceding 12 trading days.
Formal Takeover bid?
Aurora Cannabis had requested that CanniMed’s board respond to the proposal prior to 5 p.m. (Vancouver time) on Friday, Nov. 17, 2017. CanniMed’s board has failed to respond to this offer because of which Aurora Cannabis has entered into irrevocable lock-up agreements in support of its proposal from shareholders representing about 38% of CanniMed’s outstanding shares, making it that much easier to wrestle control of the company.
Strategic Rationale for the Aurora-CanniMed Combination
Aurora Cannabis believes that the combination of the two companies is extremely compelling, in the best interest of all shareholders, and will accelerate growth and shareholder value creation for the combined entity, further extending the company’s leadership position within the global cannabis sector. The combined entity will have:
CanniMed acquiring Newstrike Resources
On Nov. 15, CanniMed announced plans to acquire all the shares of Newstrike Resources at an exchange ratio of 0.033 CanniMed shares per Newstrike share. After two days, Newstrike acknowledged that it has entered into an agreement to be acquired by CanniMed Therapeutics in an all-stock transaction. Both companies have agreed on the acquisition and have given out the plan to create a premier Global Cannabis Company. Below are the few key points from the acquisition presentation.
Compelling Strategic Rationale – Why Newstrike?
Newstrike Resources is the owner of the marijuana producer Up Cannabis, which received its cultivation license in December 2016, and is based in Brantford, Ont. Newstrike has three production sites at Brantford, Grimsby and Creemore. Currently, the Brantford facility has a cultivation license with a production capacity of 3,000 kgs. The other two facilities are still under construction and Newstrike Resources expects total production to reach ~10,000 kgs by the end of 2018. Additionally, Newstrike Resources has a partnership with the Canadian musical artists, The Tragically Hip. This partnership will help the company to capture the recreational market. Newstrike Resources intends to develop a diverse network of high-quality cannabis brands that addresses the needs of medical clients and eventually, as the law allows adult consumers.
Conclusion – Which deal will go through?
The Newstrike Resources offer requires CanniMed shareholders to approve the transaction. Given that 38% of CanniMed shareholders have contractually agreed to support the Aurora offer and to vote against any proposed action by the CanniMed board, the Newstrike Resources offer is a highly conditional proposition with significant uncertainty.
After looking at each of the deals synergies, it is clear the Newstrike Resources offer should be considered oppressive to CanniMed shareholders and to Aurora’s offer, which delivers significantly higher financial and strategic value to CanniMed shareholders. Aurora Cannabis is reviewing its options with respect to CanniMed’s Newstrike Resources offer and will comment further in due course.
Disclosure: Neither the author nor any of the principals at SmallCapPower, or their family members, own units in any of the companies mentioned above.
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