U.S.-based cannabis grower Green Growth Brands is considering a hostile takeover of Canadian licensed producer Aphria, according to Bloomberg.
Aphria's stock had previously been on the decline due to both general market sentiment following 2018's record gains as well as accusations by known short-seller Quintessential Capital Management, who claimed that Aphria paid artificially high prices for certain international assets in order to line the pockets of company insiders at shareholder expense. Aphria fired back immediately, however, claiming that the accusations were "false and defamatory."
Following Thursday's reports of the possible takeover, Aphria stock rose more than 30 percent in late trading.
“They’re currently at an attractive value in the market. ... We were looking for the most positive and friendly way to do this, but I think ultimately, we felt like a delay would be unnecessary. We wanted to be proactive and reach out directly to the shareholders." — Peter Horvath, CEO of Green Growth BrandsIrwin Simon, Aphria's Independent Chair of Board of Directors, said in a press release issued Friday morning that, "While we appreciate GGB's interest in the value we have created at Aphria and our significant growth prospects, their proposal falls short of rewarding our shareholders for participating in such a transaction."
"The Board has determined that the GGB proposal, as it currently stands, significantly undervalues the company," Simon said. "Aphria has a tremendous market opportunity as a leader in the sector and a strategic vision to meet those opportunities. Our focus is to realize that value for the benefit of all our shareholders."
The company has since established an independent committee of directors to consider the proposal and any future formal offers.
The proposed hostile takeover would nonetheless create a higher market cap for Aphria, as Green Growth Brands would value the company at CA$2.8 billion. At close of business on Thursday, Aphria's market cap was just CA$1.39 billion.
While ongoing federal prohibition in the U.S. won't allow cannabis produced in Canada to be shipped to Green Growth's current operations, Horvath said the deal was based on, "taking the talent from both organizations and leveraging it across the different geographies.
"You can’t move product but you can certainly transport intellectual property and capability," Horvath said. "It’s about combining our consumer expertise with their grow expertise.”
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