Green Growth Is Open to ‘Change’ on Its Bid for Aphria

(Bloomberg) -- Green Growth Brands Inc. is flexible and open to negotiations on its unsolicited takeover offer for Aphria Inc., though the two companies haven’t had a face-to-face conversation about the bid.

“It’s likely there needs to be some negotiation and there’s a chance that the offer might change,” Green Growth Chief Executive Officer Peter Horvath said in a phone interview.

Green Growth last week formally submitted an all-stock takeover offer it had first proposed in December, which it said valued Aphria at C$2.4 billion ($1.8 billion). Today that offer is worth about C$2.1 billion based on Green Growth’s share price, well below Aphria’s market value of C$2.6 billion. Aphria earlier said the bid was too low and advised shareholders to take no action until its board issues a recommendation.

Horvath said he’d be open to discussing a strategy that would include helping Aphria raise capital, for example.

“I think there’s always a chance that it could take on a form that’s different from what our bid was and it might not just be economics, it could be the ability to raise capital for their business,” he said.

Columbus, Ohio-based Green Growth has offered 1.5714 shares per Aphria share and plans to complete a third-party equity financing of C$300 million at C$7 a share to fund what would be the first large cross-border takeover in the cannabis industry. That’s nearly 40 percent above Green Growth’s Wednesday closing price of C$5.05.

Merger Gap

The 21 percent gap between Green Growth’s offer and Aphria’s current share price is the third widest of the 107 current deals tracked by Bloomberg.

Green Growth’s largest shareholder, All Js Greenspace LLC, backed by the retail fortune of Ohio’s Schottenstein family, has agreed to purchase up to C$150 million shares as a backstop to the financing.

Horvath said his investment bankers are confident other shareholders will pitch in the remaining C$150 million.

“I’m told people believe that they can raise it,” he said. “There’s a series of firms that’ll probably raise C$50 million or C$60 million each for us, and there’s a lot of interest in our business.”

Reject Bid

CIBC analyst John Zamparo said last week that it’s unlikely Aphria shareholders will accept the offer.

“We believe that ultimately this bid will not entice a majority of Aphria shareholders,” he said.

Aphria shares gained 4.9 percent to C$10.54 Thursday and Green Growth rose 5 percent to C$5.30. Green Growth said Thursday morning it has reached an agreement to acquire Desert Rose, a medical marijuana cultivator and retailer in Arizona, for $12.4 million. Green Growth also has operations in Nevada and Massachusetts.

Horvath said he believes Arizona will legalize recreational pot within 18 months and it’s acquisitions like Desert Rose that will help boost Green Growth’s share price to the C$7 level. The company is also opening its first mall kiosk selling topical products infused with cannabidiol, or CBD, and plans to have 300 open by the end of the year. Horvath said his aim is to compete with skin-care lines from the likes of Aveda, Kiehl’s and Bath & Body Works.

“The possibility of combining with Aphria is exciting and increases our footprint, but the kiosk business is what I’m most excited about,” Horvath said.

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