Cannimed Therapeutics Should Choose Aurora Cannabis Over Newstrike

 | Nov 23, 2017 00:41

h2 Newstrike Resources Ltd.’s deal should be considered oppressive to CanniMed Therapeutics Inc. (TO:CMED) shareholders as well as the Aurora Cannabis Inc. (TO:ACB) offer

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:

  • Substantial synergy through the creation of a global leader in the cannabis industry with a pro-forma market capitalization exceeding $3.0 billion
  • Over 40,000 patients – a combined total of over 40,000 active registered cannabis patients in Canada
  • 5 state-of-the-art facilities – significant cultivation capacity with five state-of-the-art facilities
  • 130,000 kg funded capacity – funded capacity of over 130,000 kilograms of annual production, with significant additional capacity planned and funded
  • Expanded international presence – a strengthened international presence with operations and agreements across North America, the European Union, Australia, South Africa and the Cayman Islands
  • Increased oil production – high throughput oil production through Aurora’s strategic extraction partner Radient Technologies Inc. to satisfy growing international demand
  • eCommerce – enabling CanniMed to leverage Aurora’s unparalleled e-commerce platform, including the only mobile app in Canada that enables customer purchases
  • Strong cash position and balance sheet fuelling rapid growth – Aurora`s sector-leading cash position and balance sheet will enable faster roll-out of initiatives for CanniMed to accelerate growth
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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.

  • The transaction will provide CanniMed with increased production capacity along with accelerated penetration into the adult-use cannabis market
  • Market Opportunity – this strategic acquisition will pave a way to create a premier global cannabis company by combining the leading medical and high-profile recreational brands