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:
- 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.
- Canopy, Aurora, and Tilray are not going to let the price go cheap.
- 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.
- We believe a true offer needs to be above the 52-week high of $19.86 a share.
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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