Already under siege from American short-sellers, Aphria Inc. now faces the threat of a takeover by a newly created U.S. cannabis company − a proposal revealed on the same day that Aphria replaced its board chair.
The acquisition proposal from Xanthic Biopharma Inc., 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. However, 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," but its shares have plummeted 27 per cent since the short-sellers' arguments were made public in early December.
In the wake of the allegations, Aphria announced on Thursday that Mr. Neufeld will relinquish his dual role as chairman and CEO. Going forward, he will solely be CEO, and Irwin Simon, who founded organic products company The Hain Celestial Group, Inc., will join the board as an independent chair.
Reached by phone on Thursday, Mr. Neufeld did not comment on the board shuffle, but said Aphria’s board was holding a conference call to discuss the offer late on Thursday and added that “this is very unusual." Aphria’s management team is “trying to really understand what they’re trying to present to us," he said.
Aphria’s TSX-listed shares were halted after Thursday’s trading day, closing at $7.57, but its New York Stock Exchange-listed shares were up 25 per cent in the first half hour after the close.
Green Growth is run out of Columbus, Ohio, and its CEO, Peter Horvath, is a former executive at lingerie retailer Victoria’s Secret. He has also worked for American Eagle Outfitters and DSW. Green Growth is backed by the Schottenstein family, who are Ohio-based billionaires that own significant stakes in American Eagle and DSW Shoes.
“We’re not a bunch of investment bankers or real estate guys trying to make money in cannabis,” Mr. Horvath said in an interview. “Instead, we’re people who’ve operated multibillion-dollar businesses at the highest level [and] competed for customers in saturated markets."
The hope, according to Green Growth, is to combine its management team’s retail expertise with Aphria’s low-cost cannabis production.
In a statement, Green Growth said it “engaged” Aphria’s board and tried to negotiate a friendly deal before going public with its intentions. The proposal to Aphria included keeping the target’s management team and offered seats on the combined board. Mr. Horvath also said he asked for a short exclusivity period to negotiate, but was turned down.
“We want their management team to continue," he said. "We think this play is about taking our talent and their talent and leveraging it across the geographies, because we don’t play in the same geographies.”
Like many of its peers, Aphria saw its shares hit highs in October prior to Canadian cannabis legalization, but then fall during a pot-stock slump in the weeks after. In early December, Aphria faced a short-sellers’ report that suggested the company wildly overpaid for Latin American and Caribbean assets that it bought from companies with which it had close connections. The shares lost 50 per cent of their value in three days and have only partially recovered, leaving the company vulnerable.
Green Growth, which was formed in February, operates medical and recreational cannabis dispensaries in two suburban Las Vegas locations with the brand name The Source and says it wholesales to other dispensaries from its own growing and production facility. This month, it received seven licences from the Nevada Department of Taxation to open new cannabis dispensaries. Green Growth said it could become one of the state’s largest sellers of cannabis. Sales of recreational cannabis in Nevada began in mid-2017.
Securities filings say Xanthic Biopharma acquired 95 per cent of Nevada Organic Remedies LLC, the Green Growth Brands predecessor, for US$56.75-million on Sept. 4 in a reverse takeover. It had US$18.99-million in revenue in the year ended June 30. Green Growth debuted on the Canadian Securities Exchange last month.
With reports from Mark Rendell
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