Globe says Xanthic makes offer for in-turmoil Aphria

Xanthic Biopharma Inc (2) (C:GGB)
Shares Issued 178,997,390
Last Close 12/27/2018 $4.98
Friday December 28 2018 - In the News

Also Aphria Inc (C:APHA) In the News

The Globe and Mail reports in its Friday edition that already under siege from American short-sellers, Aphria now faces the threat of a takeover by a newly created U.S. cannabis company. A triple-bylined item led by David Milstead says that the acquisition proposal from Xanthic Biopharma, operating as Green Growth Brands Ltd., was announced late Thursday. Minutes later, Aphria announced it had removed chief executive officer Vic Neufeld from the role of chair and replaced him with an independent director. Under the unusual offer, Green Growth plans to announce a takeover of Aphria worth $2.8-billion, or $11 a share -- a 45-per-cent premium to Aphria's closing price. A formal bid is still to come. Green Growth had a market valuation of a little less than $900-million on Thursday, less than half of Aphria's worth. The announcement comes after short-sellers accused Aphria of overpaying for international acquisitions, and alleged that the acquired assets had been owned previously by firms with apparent ties to an adviser and prominent investor in Aphria. Aphria has called the allegations "false and defamatory"; its shares have plummeted 27 per cent since the short-sellers went public in early December.

© 2018 Canjex Publishing Ltd.

Apha Bidding War Predicted

After the close of trading on Wednesday, December 27th, Green Growth Brands Ltd (CSE:GGB) made a US$ 2.1 billion offer for Aphria Inc (NYSE:APHA), or around C$11 per share. We told our readers last week that a takeover bid was likely, although we didn’t see one coming from Green Growth. We said:

“the possibility that Canopy, Aurora or Tilray will acquire Aphria. In our opinion, Tilray makes the most sense because they need to justify their sky-high valuation. Aphria has more revenues than Tilray and brings an established LP into the Tilray fold.”

We believe the offer from Green Growth is just a starting point and that a bidding war is going to commence. Here’s our thesis:

1. Green Growth has the financial backing of the billionaire Schottenstein family, which has a sprawling retail empire that includes lots of real estate and interests in grocery stores and consumer-goods manufacturing. They have the financial strength to increase their bid if they have to.
2. Canopy, Aurora, and Tilray are not going to let the price go cheap.
3. Aphria just appointed Irwin Simon as Chairman. He founded The Hain Celestial Group, Inc. a leading organic and natural products company, in 1993.  As Founder, President, Chief Executive Officer, and Chairman, Mr. Simon lead Hain Celestial for 25 years, growing the business to approximately US$3.0 billion in net sales including operations in North America, Europe, Asia, and the Middle East. Billionaire Carl Icahn made $430 million investing in Hain. Simon knows how to increase shareholder value and we expect him to drive a hard bargain in any negotiations.
4. We believe a true offer needs to be above the 52-week high of $19.86 a share.

According to the Green Growth press release:

Prior to announcing its intention to take the Offer directly to shareholders, Green Growth engaged Aphria’s board to attempt to negotiate a friendly business combination that included, among other things, a very short exclusivity period to allow both parties to seriously consider the combination; a full go-shop provision in favor of Aphria; and the preservation of Aphria’s management and commitment to board representation at the combined company.  Aphria’s shareholders should be aware that Green Growth offered that upon a friendly business combination with support from Aphria’s board, Green Growth would invest C$50 million in equity at an Aphria per share value of C$11.00.

This tells us CEO Vic Neufeld and the board knew this offer was coming. That’s why they went out and go Irwin Simon to become Chairman. They want a seasoned executive at the top to negotiate a deal of this scale. After the recent findings from short sellers, we believe this is in every shareholder’s best interest.

Bottom Line

Aphria was bidding up 19.4% in after-hours trading. If a deal were to happen, it will be at a much higher price than C$11. All we can say right now is to hold on and let the bidding war commence. The next few days/weeks shall be interesting. Grab your popcorn!

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Disclosure: We own shares of APHA. We have not been compensated for this article.

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