Aurora Buys CanniMed In Billion Dollar Deal

After months of nasty fighting, Aurora Cannabis (ACBFF) and CanniMed Therapeutics (CMMDF) have finally come to friendly terms. The once-hostile takeover bid by Aurora Cannabis to acquire CanniMed has ended on friendly terms.

On Wednesday, the Special Committee of the CanniMed Board agreed to support a new offer made by Aurora to buy all outstanding shares of CanniMed not owned by Aurora. In addition, the new offer will be supported by the locked-up CanniMed shareholders representing 36% of CanniMed’s outstanding shares and by Brent Zettl, President, and CEO of CanniMed.

A High Price To Pay For Cannabis

Originally, Aurora had planned to pay $24 a share, it has now been forced to pay $43 – a 181% premium over the closing price of CanniMed Shares on November 14, 2017. It’s a 79% increase in the previous offer Cap Price of $ 24.00. The total value of the deal is now approximately $1.1 billion based on Aurora’s implied share price of $ 12.65.

According to the company statement, “The maximum amount of cash available under the amended offer will be $140 million, and the number of Aurora shares to be issued will be between approximately 72 million (assuming full cash elections) and 84 million (assuming full share elections and no cash elections). Assuming maximum cash elections, each CanniMed shareholder would receive $5.70 in cash and 2.9493 Aurora shares.”

Aurora shares fell 5% on the news of the finalized deal and were lately trading at $11.35 on the OTC Marketplace.

Newstrike Deal Is Off

During the hostile days of the attempted takeover, CanniMed had embarked on an acquisition of Newstrike Resources (NWKRF). That deal is now over. CanniMed entered into a termination agreement with Newstrike that is resulting in breakup fee payment of a $9.5 million.

Aurora had characterized the acquisition and supply agreements signed with Newstrike as “bizarre.” Questioning why CanniMed would sign a supply agreement with a company it was going to acquire. Newstrike shareholders had approved of CanniMed acquiring the company. Newstrike shares plunged 18% on the breakup news and were lately trading at $1.19.

Reuters had reported that Aurora was considering buying both companies, but that now looked to be premature.

Management Comments

“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,” said Terry Booth, CEO of Aurora. “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. ”

Brent Zettl, President, and CEO of CanniMed, added, “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.”

“This is an excellent outcome for both Aurora’s and CanniMed’s shareholders after a hard-fought and diligently negotiated process,” said Cam Battley, Aurora’s Chief Corporate Officer. “We now look forward to warmly welcoming CanniMed’s employees and forging one unified team. Together, under the Aurora banner, we’ll continue to invest in domestic and international growth, and continue executing on our strategy of building the most dynamic, innovative integrated cannabis company in the world.”

Was It Worth It?

The two sides were publicly very nasty to each during the battle leading many industry insiders to feel that there was more going on behind the scenes than the two companies let on. So, whether the companies can truly bury the hatchet will remain to be seen.

Plus, at $1 billion Aurora will need to sell a lot of cannabis to break even on this deal. Aurora says it is “on track for a total production capacity of around 200,000 kg per annum.” According to Statista, the average price Aurora gets per gram is $8. That translates to $1.6 billion a year. However, that is a total production, not just CanniMed. CanniMed is only able to grow 7,000 kg a year at this time. That’s only $56 million. Even if CanniMed can ramp up and grow more, it will be years before Aurora makes a profit on this deal.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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