Cannabis Grower Aurora Proposes Industry's Largest Takeover

(Bloomberg) -- Aurora Cannabis Inc. proposed the largest takeover bid in Canada’s nascent marijuana market in an attempt to expand its reach into Europe.

Aurora said late Tuesday it offered to acquire CanniMed Therapeutics Inc. in an all-stock, C$582 million ($455 million) deal that values the Saskatoon, Saskatchewan-based company at C$24 a share, 57 percent above its closing price on Tuesday.

Both sides have yet to have "active discussions" about a deal, Aurora said in a statement. It added that investors holding 38 percent of CanniMed stock are backing the takeover, and that the company has until 5 p.m. Vancouver time on Nov. 17 to respond to its proposal before Aurora proceeds with a formal bid.

Cannabis Grower Aurora Proposes Industry's Largest Takeover

The unsolicited bid comes as the frenzy surrounding Canada’s marijuana market reaches news highs ahead of legalization in July. Shares of Aurora have more than doubled this month, giving the medical marijuana company a market capitalization of about C$2.5 billion, while its revenues in the year through June were just C$18.1 million. The rally has been helped by speculation it can secure a strong market position in Quebec’s cannabis market.

In October, Constellation Brands Inc., the seller of Corona beer, announced the purchase of a minority stake in Canadian weed producer Canopy Growth Corp., marking the first major foray by an alcohol company into the industry and hinting at how Canopy may expand beyond the medical market and into recreational use. Last year, Canopy acquired rival grower Mettrum Health Corp. for C$344 million in the industry’s largest deal.

Aurora’s offer "could spark a wave of consolidation with the larger players ‘gobbling up’ the smaller ones," Vahan Ajamian, an analyst at Beacon Securities Ltd. in Toronto, said in a note.

CanniMed is a medically focused producer. A tie-up would help both companies expand more aggressively into Europe, Aurora Executive Vice President Cam Battley said Tuesday in an interview.

“We’re making a very big push into Europe right now,” he said. “It’ll be a potential game-changer in the Canadian market and also internationally.”

Aurora dropped 3 percent to settle at C$6.22 in Toronto, while CanniMed’s stock rose 29 percent to C$19.80, a closing record.

CanniMed is advising its shareholders to take no action until the board has had the opportunity to fully consider and make a recommendation regarding the unsolicited offer, the company said Wednesday in a statement. The proposed offer “is inflated” and “overvalues Aurora” as it is based on the closing price of Aurora shares on Nov. 14, following a recent run-up, according to the statement.

CanniMed is in advanced discussions to acquire Newstrike Resources Ltd., which if completed would give the company a greater foothold in the adult use marijuana market, the company said.

The move would make it more expensive for Aurora to buy CanniMed and would dilute the vote of the shareholders Aurora says it has locked up, said Chris Damas, editor of the BCMI Report.

“Quite often an effective defense to a hostile bid is either to buy another company and make yourself bigger, or to find a better buyer (the White Knight move),” Damas said in a note.

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