Aurora Cannabis Deal Could Spark a South American M&A Spree

Aurora Cannabis Inc. (TSX:ACB) appears to be the market leader in South America with its pending acquisition of ICC Labs Inc. (TSXV:ICC)

SmallCapPower | September 13, 2018: Aurora Cannabis Inc. (TSX:ACB) Monday announced a definitive arrangement to acquire all of the issued and outstanding common shares of ICC Labs Inc. (TSXV:ICC) in an all-stock transaction valued at $1.95 per ICC share, or a total purchase price of ~ $290 million. The purchase price of $1.95 per share represents a 34% premium to ICC’s 20-day volume-weighted average trading price as of August 22.

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The acquisition should boost Aurora Cannabis Inc’s position as the industry leader in South America and will act as an anchor to gain a strong foothold in the region. Aurora will be at an advantage, as a low-cost producer with a strong suite of product portfolio and extensive distribution channel throughout South America and internationally. ICC presently has over 70% market share in Uruguay and holds licenses in Colombia for the production of medical cannabis. Uruguay is the only country where regulations currently permit the cultivation of CBD-rich hemp on a commercial scale, allowing licensed producers to grow hemp with THC concentrations of up to 1%, providing a significant yield advantage over global competitors.

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ICC Labs has operational facilities and a number of projects nearing completion with a totaled production capacity to over 450,000 kg per annum. ICC recently launched its BIDIOL brand of CBD products, and is developing a broad international distribution network, including a presales agreement to export product to Mexico. ICC is close to completing South America’s first state-of-the-art cannabis science laboratory, designed to the highest international standards and in compliance with applicable GMP standards.

Under the terms of the transaction, each shareholder of ICC will receive $1.95 per ICC Share, payable in Aurora Cannabis shares valued at the volume-weighted average trading price of Aurora shares on the TSX during the 20 trading day period ending the second to last trading day on the TSX immediately prior to the Effective Date, being the date, the transaction is completed. Pursuant to the terms of the transaction, based on the volume-weighted average trading price of Aurora shares on the TSX during the 20-trading day period ending September 7, 2018 an ICC Shareholder would receive 0.2448 Aurora shares for each ICC share held, resulting in Aurora Cannabis issuing approximately 36.2 million Aurora shares in connection with the transaction, representing approximately 3.6% of outstanding Aurora Cannabis shares after giving effect to the transaction.

Shareholders representing approximately 29.4% of ICC have agreed tender their shares to the offer. The transaction is subject to the approval of the Supreme Court of British Columbia and the approval of two-thirds of the votes cast by ICC Shareholders at a special meeting to be called of ICC Shareholders to approve the transaction. The expectation is that the transaction will be completed in the fourth quarter of 2018.

Aurora Cannabis CEO Terry Booth said, “ICC is an ideal partner for Aurora to establish leadership in the South American cannabis market, delivering clear first mover advantage on a continent with over 420 million people. ICC and its management team have shown exceptional vision and execution across production, expansion, distribution and product development. The company has a very strong management team with deep connections throughout the continent, which we believe will facilitate successful expansion into all South American markets.”

Aurora Cannabis trades at a market capitalization of $8.65 billion with a price to book multiple of 3.71x. Shares of Aurora have climbed more than 12% to its current price of $9.11 since the ICC acquisition announcement.

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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