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Aphria (APHA) Stock Soars on C$2.8 Billion Takeover Offer, But Analysts See More Value


Aphria (APHA) shares are shooting up 25% faster than Jack’s magic bean sparking right into a giant beanstalk. The reason? Green Growth Brands, a cannabis lifestyle consumer product company, has announced its intention to make an offer to purchase all of the issued and outstanding common shares of Aphria which it does not already own.

The Offer will provide Aphria shareholders with 1.5714 common shares of Green Growth for each Aphria Share and represents premiums of 45.5% over Aphria’s closing price on the Toronto Stock Exchange (TSX) on December 24, 2018.  The Offer values Aphria at approximately C$2.8 billion (US$2.1 billion) based on a valuation of C$7.00 per share for Green Growth Shares.

Green Growth CEO Peter Horvath commented, “We believe our offer will create value for both Aphria and Green Growth shareholders.  We are confident that the significant premium we are offering and the opportunity to participate in the growth of a stronger, combined company are so compelling that we are taking our offer directly to Aphria’s shareholders.  Together, we can unleash synergies between our teams, assets and geographies, forming a combined enterprise that will accelerate our collective growth strategies in Canada, the U. S. and overseas.”

Green Growth expects to complete a concurrent brokered financing of C$300 million, at a price per share of C$7.00, to both illustrate confidence in the value of the consideration under the Offer and to fund the business growth of the combined entity. Green Growth expects that certain of its existing shareholders will commit to backstop the C$300 million financing concurrently with the execution of a business combination agreement with Aphria or the take up of shares under the anticipated Offer.

Prior to announcing its intention to take the Offer directly to shareholders, Green Growth engaged Aphria’s board to attempt to negotiate a friendly business combination that included, among other things, a very short exclusivity period to allow both parties to seriously consider the combination; a full go-shop provision in favor of Aphria; and the preservation of Aphria’s management and commitment to board representation at the combined company.  Aphria’s shareholders should be aware that Green Growth offered that upon a friendly business combination with support from Aphria’s board, Green Growth would invest C$50 million in equity at an Aphria per share value of C$11.00.

Why a Combined Green Growth and Aphria is Better for Shareholders:

  • Creates an Unparalleled North American Player with Canadian and U.S. Operations – Aphria has a large footprint in Canada and supply agreements with all provinces and the Yukon Territory and strong strategic partnerships establishing wholesale supply agreements.  Green Growth operates vertically integrated cannabis operations including cultivation, manufacturing and retail assets in Nevada, including recently being awarded seven retail cannabis dispensary licenses.  Together, the pro forma company will have a strong foundation, extensive retail relationships and infrastructure to capture significant future growth as international markets evolve.
  • Increases Scale, Footprint, and Creates the Preeminent U.S. Consolidator – The combined company will be the largest U.S. operator by market capitalization and the only North American cannabis operator.
  • Combines Aphria’s Cultivation and Production Capacity with Green Growth’s Retail Strength – The combined company will marry Aphria’s low-cost cultivation and near-term production capacity with Green Growth’s vast retail know-how to capture market share while maintaining lean margins.  Aphria’s current cash cost per gram is C$1.30 and is expected to further decrease to C$0.95 per gram with projected annual capacity of over 250,000 kg by early 2019 (Aphria  Q1 2019 Investor Presentation dated October 11, 2018). Green Growth’s strong management team has a proven track record of delivering at the retail level and is already operating a best-in-class dispensary in Las Vegas.
  • Poised to Benefit from Transformational Cannabis-Related Regulatory Changes in the World’s Largest Cannabis Market – Green Growth will soon be rolling out a consumer-focused line of CBD products, initially focused on topicals and balms, and is well-positioned to benefit from further pro-cannabis U.S. regulation in the near-to-medium term.
  • Unites Best-in-Class Management Teams: Aphria’s Pharmaceutical and Greenhouse Operational Experience and Green Growth’s Proven Retail Expertise – Aphria’s team is comprised of veterans in the greenhouse industry and proven operators of large pharmaceutical companies.  Green Growth’s CEO held senior positions at a number of well-known retailers including Designer Shoe Warehouse Inc. and L Brands Inc. (Victoria’s Secret).  Additionally, Green Growth’s largest shareholder, the Schottenstein family, has deep relationships in the retail sector.

Wall Street analysts actually see more value in Aphria shares right now. While Green Growth’s offer stands at $8.08 (C$11.00) per share, the consensus price target for APHA stock based on 11 analysts who currently cover the stock stands at $14.50, or 80% above Green Growth’s proposal. (See APHA’s price targets and analyst ratings on TipRanks)

 

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