Canada’s second-biggest marijuana producer Aurora Cannabis Inc has agreed to buy smaller rival CanniMed Therapeutics Inc for $1.1 billion (US$852 million) creating the world’s largest weed producer by market value.
The agreement follows months of tensions between the companies as Aurora made a hostile bid of $24 per share for CanniMed, which itself was engaged in a friendly deal to buy Newstrike Resources Ltd.
Aurora’s revised offer, 3.4 of its shares for each CanniMed security, equates to $43.00, or a 15 percent premium to CanniMed’s last traded price. The acquisition would give the combined entity a market value of $7.75 billion, overtaking Canopy Growth Corp’s $7 billion, which made it the world’s biggest marijuana company by market value.
The agreement tops a deal-making frenzy among cannabis companies as they jostle for prime position ahead of Canada’s legalization of recreational use of marijuana by mid-2018, making it only the second country in the world to do so.
CanniMed shareholders can choose a combination of stocks and cash, although the maximum cash available will be $140 million, the companies said in a statement.
By buying CanniMed, Aurora is seeking to bolster its capacity to meet domestic demand, as well as increase distribution around the world as more countries approve the use of medical marijuana.
Canadian cannabis stocks have been on a tear in anticipation of this surge in demand. Aurora’s shares soared 427 percent over the past three months to touch a record $14.97 on Tuesday. CanniMed has jumped 240 percent and hit an all-time high of $39.50 on Tuesday.
CanniMed has agreed to pay a break fee of $9.5 million to terminate its takeover agreement with Newstrike, whose shareholders had voted in favour of the deal last week. CanniMed canceled its own investor vote on the transaction.
Update: Both Aurora and CanniMed have in recent years secured financing from Canadian and U.S. private equity and venture capital investors. Aurora has been funded by Alumina Partners, while CanniMed has been backed by Golden Opportunities Fund, a retail venture capital fund managed by Westcap.
(Reporting by Nichola Saminather in Toronto and Anirban Paul in Bengaluru; Editing by Denny Thomas and Andrew Hay)
(This story has been edited by Kirk Falconer, editor of PE Hub Canada)
Photo courtesy of Reuters/Blair Gable