Aurora Cannabis Inc., one of the largest cannabis producers in Canada, has agreed to acquire smaller CanniMed Therapeutics Inc. for C$1.1 billion or $852 million in an effort to create the top cannabis company in the world. The cash-and-stock deal comes after weeks of tensioned discussion between the two rival companies.
Aurora revises original offer
Initially, Aurora made a hostile bid for CanniMed capped at C$24 per share. This original offer was significantly lower than what CanniMed was willing to take, especially in light of Canada’s nationwide legalization of recreational cannabis, which is set to officially take effect this July.
In its revised offer, Aurora has agreed to pay CanniMed stockholders C$43 per share. Aurora will pay the equivalent of this value in Aurora shares, in cash, or a combination of both, subject to a prorating of C$140 million that the company is making available in cash.
Aurora-CanniMed deal marked the biggest transaction in the cannabis industry worldwide, bringing the value of cannabis-related deals to $1.2 billion. The deal is expected to give the combined entity a C$7.4-billion ($6.01 billion) market value, surpassing Canopy Growth.
CanniMed ditches Newstrike acquisition plan
Before the deal with Aurora came through, CanniMed was engaged in merger talks with Newstrike Resources Ltd, which owns Up Cannabis, Inc. The deal was viewed favorably by Newstrike shareholders. However, Aurora had warned that they would not pursue their deal with CanniMed if the Newstrike acquisition plan goes through. As a result, the CanniMed-Newstrike deal is now terminated.
Also under the terms of the Aurora-CanniMed deal, CanniMed is required to pay Newstrike the agreed-upon C$9.5-million break fee. This break fee, together with Newstrike’s plan to convert a debenture that it had issued earlier and to exercise common share purchase warrants that it had issued to CanniMed, leaves the Toronto-based company with a C$14.1-million cushion. Newstrike intends to use this amount to expedite work on a new greenhouse in the Niagara area and to expand its Up Cannabis brand rollout.
CanniMed is the first licensed medical cannabis producer in Canada. It has been a major player in the medical cannabis business in the country for 17 years. It was also the sole supplier to Health Canada for 13 years under the former Canadian medical cannabis system.
CanniMed makes cannabis oils and other products by injecting ethanol into compressed cannabis flower material then extracting medical ingredients like THCA before evaporating the ethanol to leave a resin.
CanniMed has its main production facility southeast of Saskatoon. It started trading publicly in December 2016 after its initial public offering had net C$69 million.
Aurora Cannabis is considered Canada’s second largest cannabis producer after Canpoy Growth Corp. As of Jan. 2, 2018, Canopy Growth has a market cap of $4.987 billion while Aurora’s is at $4.391 billion.
The Edmonton-based Aurora debuted on the Toronto Stock Exchange (TSX) in October 2016. Aurora produces dry cannabis and, in January 2017, was granted license to sell cannabis oil.
The Aurora-CanniMed deal: the biggest in the world
Aurora-CanniMed deal marked the biggest transaction in the cannabis industry worldwide, bringing the value of cannabis-related deals to $1.2 billion.
It is said that by buying CanniMed, Aurora is hoping to bolster its capacity to increase distribution around the world and to meet domestic demand.
The deal is expected to give the combined entity a C$7.4-billion ($6.01 billion) market value, surpassing Canopy Growth.
Canopy, however, will retain its spot as leading producer, with capacity at both current and planned facilities that exceed those of Aurora and CanniMed combined.
Moreover, the Aurora-CanniMed combined entity’s market value would surpass some well-established and older Canadian companies like Bombardier Inc., which has a market value of C$7.1 billion.
The merger deal still needs shareholder and regulatory approvals. So far, it has already received a favorable vote from 36 percent of CanniMed’s shareholders.