American cannabis retailer Green Growth Brands Inc. has formally launched a hostile $2.4 billion takeover bid for Aphria Inc., charging ahead with its attempt to acquire the Canadian licensed producer a mere three weeks after Aphria said it was not interested in the Ohio-based company’s overtures.
The all-stock takeover would provide Aphria shareholders with 1.5714 shares of Green Growth for each Aphria share, and be subject to a $300 million equity financing in Green Growth at $7 per share, which the company says it is planning to complete.
“The combination of Aphria’s Canadian supply and wholesale agreements with Green Growth’s vertically integrated operations and rapidly growing retail footprint in the United States best positions us to capitalize on the massive growth opportunities in North America and beyond,” Green Growth CEO Peter Horvath said in a press release Wednesday.
Aphria advised its shareholders to take no action on the hostile bid until its board puts out a formal recommendation. The Leamington-based company also noted in a statement issued late Tuesday night that Green Growth’s proposal “significantly undervalued the company relative to its current and future value.”
“We are determined to protect Aphria shareholders from opportunistic offers that fail to reflect the substantial value and growth prospects we have built at Aphria. We will evaluate GGB’s offer in this spirit,” said Irwin Simon, recently-appointed independent chairman of the company.
Aphria recently announced a leadership shuffle which will see founder Cole Cacciavillani and CEO Vic Neufeld “transition out of their roles,” to be replaced by Simon and current President Jakob Ripshtein. Neufeld had come under intense scrutiny from investors and Aphria shareholders after a December short-seller report accused him of “insider self-dealing” through the acquisition of a number of Latin American cannabis assets.
Aphria’s stock was trading at $9.43 at market close on Tuesday, a substantial premium to where it was trading about a month ago, after it plunged following the release of the short-seller report. If Green Growth’s stock price — which last stood at $5.98 — manages to hit the $7 mark, the deal would value each Aphria share at approximately $11.
Although based in Ohio, Green Growth’s cannabis presence is largely in Nevada, where it owns two retail outlets, and has obtained licensing from the state to open an additional seven stores. The company has said in the past that it is targeting a run-rate revenue of US$54 million annually, once all its Nevada stores are in operation. By contrast, Aphria generated a revenue of $37 million in 2018, mostly based on the sale of cannabis to the Canadian medical market.
Some analysts and industry observers had begun to question whether Green Growth would be able to generate the $300 million in equity financing needed to finalize the takeover. But in its statement, the company confirmed that an entity called All Js Greenspace LLC had agreed to purchase up to $150 million of Green Growth shares as a backstop to completing the full $300 million equity financing.
All Js, which describes itself as an Ohio-based holding company, appears to already have some ties to Green Growth. A November 2018 press release indicated that it had acquired a substantial stake in Green Growth — then known as Xanthic Biopharma — including voting rights, for “investment purposes.” Corporate filings show that the transaction was signed off by a Tod H. Friedman, who also appears to be the general counsel and executive vice president of Schottenstein Realty Trust Inc, according to Bloomberg.
Green Growth has had the backing of the Schottenstein family since its founding, best known for fashion retailer American Eagle. Horvath was formerly chief global commercial officer at American Eagle.
As the Financial Post previously reported, Aphria too has a Schottenstein connection. In the summer of 2017, the Ohio-based family partnered with Aphria to bid for a marijuana cultivation licence in the state.
The links between Aphria and Green Growth were scrutinized in a recent report by the same short sellers that targeted Aphria for its Latin American transactions. Hindenburg Research and Quintessential Capital Management alleged, in late December, that both companies share some of the same insiders, including Aphria board member Shawn Dym, who was a former board member for Green Growth.
The report also pointed out that outgoing Aphria CEO Vic Neufeld was at one point a board member of Green Acre Capital, which owns a fund that was one of the largest shareholders in Green Growth.
The American retailer subsequently put out a statement refuting any suggestions that it was a related party to its takeover target, saying informal relationships that exist within the industry are separate from official “related party influence” with Aphria.
If successful, the bid will be the largest cross-border takeover in the cannabis industry, creating the “only large-scale cannabis company to bridge U.S. and Canadian markets,” according to Green Growth. The company’s offer to Aphria’s shareholders will remain open until May 9.