Green Growth’s hostile bid for Aphria is official. The consequences could be devastating for shareholders.
On Tuesday Green Growth Brands Inc. (CSE:GGB) made official their intentions to purchase Aphria Inc. (TSX:APHA) (NYSE:APHA) with an unsolicited take-over bid, offering 1.574 shares for each Aphria share. That would put that value of the offer at $8.80 per share, 7 percent lower than Aphria’s last closing price.
By Wednesday morning, however, Aphria’s stock had fallen to just over $7.00 per share, a .41 percent decrease.
Green Growth also has investors lined up to backstop $150 million —half of the capital the company would need to raise — pending the approval of Aphria shareholders. According to reports, should the deal go through these investors would receive $7.5 million in Green Growth shares, or 1.25 million fully diluted shares, which would also give them over 12 percent of the voting rights at the company.
Aphria advises shareholders to take no action
In a statement released on Tuesday, Aphria advised that shareholders take no action until the Board of Directors made a formal recommendation. Currently, the independent committee of Aphria directors is considering the offer and will share their decision with the Board before making their thoughts public.
"Aphria is a market leader and has a tremendous opportunity to create substantial value for shareholders,” Irwin Simon, Aphria's independent Board Chair, said in a statement. “Any offer would necessarily need to be evaluated against the current and future value of our current strategic plan. We are also determined to protect Aphria shareholders from opportunistic offers that fail to reflect the substantial value and growth prospects we have built at Aphria.”
— aphria (@aphriainc) January 23, 2019
“We will evaluate GGB's offer in this spirit," he continued.
Green Growth’s bid for Aphria opened on Wednesday and will continue until May 9. According to reports, the company already owns 3 million shares of Aphria which constitutes just over 1 percent ownership.
Should Green Growth be successful in their bid to takeover Aphria, it could mean the end of their time on the New York Stock Exchange and the TSX. Both exchanges forbid companies to violate federal law, which would disqualify the company and force it on to the CSE and the OTC markets.
Green Growth undervalues Aphria
Experts and analysts agree that Green Growth’s bid undervalues Canada’s number three Licensed Producer, but at the same time, Aphria has struggled to maintain its stock price throughout the year. The company’s troubles came to a boil late last year when a coordinated short-seller attack blindsided management, sending share prices plummeting. Despite what many saw as a blatant deception, Aphria failed to respond to the attack promptly and was never able to recover fully.
Middling Q2 financials eventually led to the ouster of CEO Vic Neufeld and Co-founder Cole Cacciavillani, who are transitioning out of the company in the next few months.
Canadian regulators put a halt to both stocks on Tuesday, with the New York Stock Exchange allowing Aphria to continue to trade. Green Growth saw share prices rise nearly 7 percent in the following the news.
“There are many considerations that will factor into the Board's recommendation and we look forward to providing our response to shareholders in due course,” said Simon in a statement. “In the interim, shareholders should take no action as it relates to the GGB offer."