CanniMed Makes Aurora Cannabis Pay, Shuns Newstrike Resources

Aurora Cannabis Inc. (TSX:ACB) ups its offer for CanniMed Therapeutics Inc. (TSX:CMED) by about 80%

SmallCapPower | January 25, 2018: After more than two months of bitter takeover battle, Aurora Cannabis Inc. (TSX:ACB) and CanniMed Therapeutics Inc. (TSX:CMED) announced Wednesday that they have entered into a friendly agreement whereby Aurora will buy CanniMed in a new and revised cash-and-stock offer equating to $43 per share, a 79% premium to its previous bid of $24 a share. The total deal value under the new offer will be $1.1 billion and will include cash of up to $140 million. Post the announcement, shares of CanniMed rose nearly 12% Wednesday to end at $41.90, while Aurora Cannabis shares eased 5% to close at $13.98. In connection with the new offer, CanniMed cancelled its acquisition arrangement with Newstrike Resources Ltd. (TSXV:HIP), which results in a break-fee payment of $9.5 million to Newstrike. Shares of Newstrike fell more than 19% to close at $1.47 Wednesday. The new offer will continue to be supported by locked-up shareholders representing 36% of CanniMed’s outstanding shares as well as certain CanniMed shareholders including the CEO Brent Zettl, representing an additional 15%.

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Terry Booth, CEO of Aurora Cannabis, 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. Market recognition of Aurora’s continued performance and strategy execution since we first announced our intention to acquire CanniMed allows us to share that benefit directly with CanniMed shareholders by increasing the offer price, as well as by offering a cash component. The amended offer includes value certainty and represents a full, compelling and immediate 75% premium over CanniMed’s 20-day average price ending January 17, 2018, the day prior to CanniMed and Aurora disclosing they were in discussions. Aurora now invites CanniMed shareholders to share in Aurora’s ongoing growth, as we continue to create superior shareholder value, by joining with the CanniMed Board of Directors and tendering their shares to our amended offer.”

Brent Zettl, President and CEO of CanniMed Therapeutics, commented, “A testament to the great team at CanniMed, this transaction clearly confirms that the Company has been highly successful in becoming a preeminent global leader in the medical cannabis industry. In this leadership position, CanniMed has provided invaluable education, resources, support and relief of symptoms for thousands of patients served around the globe.”

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The deal marks the biggest acquisition in the marijuana space and creates the most valued cannabis producer in Canada with a market cap of $7.3 billion, surpassing Canopy Growth’s (TSX:WEED) $6.7 billion. In terms of production capacity, however, Canopy Growth will still be the market leader, with current production capacity of over 30,000 kgs annually and expected production capacity of over 150,000 kgs annually by 2019. Currently Aurora Cannabis has a production capacity of ~10,000 kgs per year, which will increase to more than 100,000 kgs per year once the mammoth 800,000 sq ft “Aurora Sky” facility comes online by end 2018. The acquisition of CanniMed will immediately add 7,000 kgs of capacity per year with potential to add another 13,000 kgs by 2019.

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

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