Green Growth Brands rang in the new year by standing firm on its commitment to acquire Aphria (NYSE: APHA) for what many analysts describe as a very low-ball offer of CA$11 ($8.18) per share. Green Growth affirms that it has the support of a growing number of frustrated Aphria shareholders who are disappointed with the stock performance and worried about the recent news of Aphria’s alleged involvement in some shady Latin American insider deals.
If the deal comes to fruition, Aphria shareholders would own the majority (60 percent) of the newly formed company, while Green Growth shareholders would own the remaining portion. Green Growth’s management has publicly stated its willingness to enhance the value of both companies and remains very confident about securing the required CA$300 million ($223.05 million) in financing.
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What do Aphria shareholders think?
Green Growth CEO Peter Horvath largely dismissed the commotion that has occurred since the announcement, instead saying that he has seen Aphria shareholder support grow for such an offer.
“Aphria shareholders are welcoming a 45 [percent-plus] premium offer because they understand the significant value that can be unleashed by our combined teams, assets and geographies,” said Horvath in a statement.
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Horvath then made a strong statement, saying that while many in the cannabis market are intent on destroying Aphria value, his company is instead committed to creating value.
Aphria does not appear to share Green Growth’s elation over the hostile takeover bid. In fact, Aphria’s team has been largely bemused by the offer. Most valuations of Aphria revenue place the stock at double the share offer. Investors won’t have to wait long to find out; January 11 will mark the first full quarter of revenue reporting from Canada’s recent nationwide cannabis legalization. Most analysts expect Aphria to fare well.
The Green Growth offer on the table is not only a low offer, but the terms of the bid also are extremely complex, and the financial calculations have left many analysts and investors scratching their heads regarding just how Green Growth came up with the numbers in the first place.
Who is Green Growth anyway?
Many players in the cannabis industry had to go find out who Green Growth Brands was, as the company was not even on the radar screens of many experts who closely follow the cannabis industry. What they found was a very small company with under $10 million in 2018 revenue operating a single dispensary in Nevada — not exactly the company one would expect to make a hostile takeover bid of relative giant Aphria.
While Green Growth is expanding licensing and product lines, it is still not at a pace that would suggest they could pull off the Aphria deal. However, Horvath disagrees, stating that Green Growth is poised for gargantuan growth given its rapid Nevada expansion, entry into the Massachusetts cannabis market and its ability to raise capital (the company has raised over CA$150 million ($111.53 million) in just one year.)
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A closer look at Green Growth also reveals some intrigue. First, the company’s largest shareholder is the very wealthy Schottenstein family from Ohio, and second, there are many questionable ties back to Aphria itself, but the Aphria management team has wholeheartedly dismissed the idea of any shenanigans at work. More than one eyebrow has been raised at the previous venture between Aphria and the Schottenstein family, whose fortune comes from the retail industry. The family was teamed with Aphria in a previous joint venture to obtain a medical cannabis license in their home state of Ohio, but the venture failed, and the family did not obtain the license.
Green Growth describes their Aphria offer as all upside. Horvath says it gives Aphria shareholders a way to participate in the much larger U.S. market and anticipates that the combined company would be a huge player in the combined North American market.
What will the future hold?
Will the combination of Green Growth’s retail expertise and Aphria’s greenhouse veterans be a match made in heaven? That question will likely be partially answered after Aphria’s quarterly revenue is reported in January.
Meanwhile Aphria stock has settled into pre-announcement values. Trading is back down to the normal trading volumes Aphria has experienced lately, and the stock opened where it closed on January 3, at right under $6 per share.
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Aphria stock experienced a slight uptick at the news of an exclusive agreement between Colcanna (Aphria’s subsidiary in Colombia) and the FMC Colombian Medical Federation, a national guild of thousands of medical professionals. Together, they will develop an academic curriculum on the medicinal use of cannabis. The FMC touts over 70,000 medical professionals who obtain training and continuing education through the guild’s virtual platform.