American cannabis retail company Green Growth Brands says it intends to make a $2.8 billion hostile bid for Aphria Inc., the major Canadian cannabis producer that has seen its stock plunge in the past month after a short-seller report questioned some of its acquisitions.
Columbus, Ohio-based GGB said it was planning to offer Aphria shareholders $11 per share in an all-stock deal, a 45 per cent premium to Aphria’s Thursday closing price of $7.57. The offer, however, is based on a valuation of $7 per GGB share, a price nearly 40 per cent above where those shares closed on Thursday.
According to Green Growth CEO Peter Horvath, the plans for a hostile bid come after friendly overtures for a business combination were rejected.
“In the last 10 days, we have worked through an intermediary to communicate to their board our interest. Throughout that process, we made it clear we were making a friendly bid,” Horvath told the Financial Post.
“We offered them a short exclusivity period, but they rejected that. So we knew we needed to move quickly, we didn’t want to be used.”
Aphria has been under intense investor scrutiny since a joint report from short sellers Quintessential Capital Management and Hindenburg Research was released early December questioning the value of three of its Latin American acquisitions in Colombia, Jamaica and Argentina.
When asked about the value of those acquisitions, Horvath said that if both companies ended up combining their businesses he would take a “pretty hard look at those assets” and “change the portfolio.”
“It’s not unlike what private equity does. We look at these assets, and mark some down,” Horvath said.
In the past 12 months, Green Growth has recorded revenue of approximately $54 million from its two retail cannabis outlets in Nevada and a grow space it operates. The company recently obtained seven additional retail licences in Nevada.
(The Nevada) market alone is going to get us $150 to $200 million of revenue. So to me, a $7 stock value is likely
Green Growth CEO Peter Horvath
The bid is subject to a number of contingencies — Green Growth is looking to raise $300 million at a valuation of $7, a substantial premium to its closing price Thursday of $4.98. As recently as Dec. 18 however, the company’s stock price was below $3.50, half the valuation that it plans to use in the deal.
“We are very confident it’s a fair valuation. With our nine stores in total in Nevada, that market alone is going to get us $150 to $200 million of revenue. So to me, a $7 stock value is likely,” Horvath said.
He said it would be a number of weeks before any offer is actually put forward.
“It’s going to be a couple of weeks before we can actually act on our intentions. We put this release out today because we wanted to give the shareholders and the board and management the opportunity to understand what we want,” he added.
U.S. listed shares of Aphria surged as much as 22 per cent in after-hours trading in New York, as news of Green Growth’s intention to launch the bid broke.
The Leamington, Ont.-based company did not respond to a request for comment.
Green Growth is backed by Ohio’s Schottenstein family — known for fashion retailer American Eagle, where Horvath was Chief Global Commercial Officer.
Aphria, too, has a Schottenstein connection — in the summer of 2017, the Schottenstein family partnered with Aphria to bid for a marijuana cultivation licence in Ohio.