CanniMed enacts poison pill to fend off hostile takeover by Aurora Cannabis
CanniMed Therapeutics Inc. has designed a poison pill to hobble the hostile takeover bid launched for the Saskatchewan-based medical marijuana company by rival Aurora Cannabis Inc.
Aurora, an Alberta-based licensed cannabis producer, has made an all-stock offer of up to $24 per share for CanniMed.
CanniMed, however, has been wary of the proposal, and said Tuesday evening in a press release that its board of directors had adopted a plan, “to ensure that all shareholders are fairly treated, well informed and not subject to coercive bids.”
CanniMed said that the shareholder rights plan blocks Aurora from buying any CanniMed shares other than those previously pledged to the hostile bid, and added that the poison pill prevents Aurora from signing any new lock-up agreements in support of its offer. Aurora has said it already has lock-up agreements supporting its bid with shareholders who represent 38 per cent of CanniMed’s stock.
The rights plan will also allow CanniMed shareholders to vote on the company’s preferred deal, an all-stock acquisition of Ontario-based cannabis producer Newstrike Resources Ltd., the release said. Under the terms of that proposed transaction, which the companies expect to close in January, CanniMed is offering 33 of its shares for every 1,000 Newstrike shares.
“The Company is very concerned that by secretly obtaining lock-up agreements from four of CanniMed’s shareholders, Aurora may be depriving shareholders of their ability to vote in respect of the Newstrike deal or may coerce them to accept the Hostile Bid,” CanniMed said.
CanniMed has struck a special committee of independent directors to weigh Aurora’s offer, which includes the condition that the Newstrike deal must be terminated.
“We remind shareholders to take no action with respect to the Hostile Bid until such time as the Board can make a recommendation,” CanniMed said. “The Special Committee unanimously recommended to the Board that it approve the (shareholder rights) Plan.”
Shares of CanniMed skidded Wednesday, losing 7.9 per cent of their value and closing at $18.43. Aurora’s stock price fell 14 per cent, to $6.75.
Russell Stanley, an analyst at Echelon Wealth Partners, said Wednesday in a note that CanniMed shares were still trading at a 19 per cent discount to Aurora’s maximum offer price of $24 per share, “suggesting meaningful uncertainty as to the odds of success for (Aurora) and/or the valuation of the (Aurora) stock that (CanniMed) investors would receive in return.”
Stanley also noted that the companies will seek shareholder approvals for their pending deals early next year. Aurora will hold its decisive shareholder meeting on Jan. 15, while Newstrike and CanniMed will hold theirs on Jan. 17 and Jan. 23, respectively.
Aurora denied that the shareholder rights plan — which, after the Newstrike proposal, they counted as CanniMed’s second poison pill — would prevent the first major hostile takeover in the short history of Canada’s cannabis industry.
“It looks to us like they’re scrambling,” said Cam Battley, executive vice-president at Aurora.
“We don’t see this as an obstacle,” he added. “We remain confident that we’re going to be able to make this go through and bring the CanniMed shareholders into the Aurora story.”
CanniMed touts itself as the first cannabis producer to be licensed under Canada’s previous medical marijuana regulations, but Battley said that the 38 per cent of CanniMed shareholders backing Aurora’s bid had actually sought out Aurora, “because they saw what was once the undisputed leader in this space simply slipping away.”
While Battley said CanniMed’s management has yet to pick up the phone, Aurora has said its offer is on the table until March of next year. Aurora has also applied to securities regulators to reduce the minimum deposit period for its offer, allowing CanniMed shareholders to consider the bid alongside the proposed Newstrike acquisition.
The proposed mergers come ahead of the federal government’s July 2018 target date for the legalization of recreational marijuana, which would provide cannabis companies with a new and potentially lucrative market. Deloitte has estimated that legalized recreational cannabis could be a $22.6-billion industry for Canada.
And with legalization about eight months away, more mergers and acquisitions are expected in the sector.
“CanniMed cannot remain simply a hobby company for its management team,” Battley said. “You’ve gotta grow, or else you become irrelevant. And I think that that’s the dissatisfaction that we’re hearing from CanniMed shareholders.”