Green Growth Issues Formal Takeover Bid for Aphria

After an initial notice to shareholders, Green Growth Brands (CSE:GGB) formalized its takeover offer for a C$2 billion valued Canadian licensed producer (LP).

Aphria (NYSE:APHA,TSX:APHA) quickly issued a response on Tuesday (January 22) following the proper offer from Green Growth, asking investors to ignore the bid for now.

The Canadian firm indicated its independent committee of directors will review the offer and then send a recommendation to the board directly.

“Any offer would necessarily need to be evaluated against the current and future value of our current strategic plan,” Irwin Simon, chair of the independent board said to shareholders.

“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.”

Details of timeline for Green Growth offer

The US multi-state operator with assets in Nevada announced its offer kicked off on Wednesday (January 23) and would be open to Aphria shareholders until May 9.

Aphria shareholders would receive 1.5714 common shares of Green Growth per APHA share including, according to the Columbus, Ohio based company, shares of Aphria that are issued and outstanding after the notice date but before the marked deadline.

Peter Horvath, CEO of Green Growth, said the combination of the two companies would position the resulting company to “capitalize on the massive growth opportunities in North America and beyond.”

In order to strengthen its offer, Green Growth announced a “commitment letter” with All Js Greenspace LLC for the subscription and purchase of up to C$150 million shares of the company.

This raise will be done as a self-described “backstop” on Green Growth’s plan to raise C$300 million equity in connection with its bid for Aphria.

Aphria argues the offer undervalues company’s worth

Aphria notified investors of a new website seemingly created to maintain the latest stance of the company in relation to the takeover bid.

In this website Aphria notes the offer from Green Growth is similar to its informal one:

GGB’s proposed offer is substantially identical to their earlier hostile proposal on December 27, 2018, which the Aphria Board had determined significantly undervalued the Company relative to its current and future value. Based on the 20-day volume weighted average price of GGB shares before the initial proposal and the expressed exchange ratio of 1.5714 common shares of GGB for each Aphria share, the Offer reflects a discount of -23 [percent] to the Company’s average share price over the same period.

Previously Simon said Aphria would consider a partnership with Green Growth in the future, but based on its current takeover bid that was not a possibility at the moment.

Investor takeaway

Since the launch of the Green Growth offer, Aphria has faced a tumultuous path while still facing questions from a much-debated short seller attack and the official step-down from CEO Vic Neufeld as part of its fiscal 2019 Q2 results.

Neufeld announced his departure as top executive amid pressure from shareholders to deliver answers on the short seller report and the lack of a business relationship with an established alcohol, tobacco or pharmaceutical player, similar to fellow competing LPs.

First reported by The Globe and Mail, Neufeld was also facing pressure from a lagging stock compared to its peers with similar assets.

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Green Growth Brands is a client of the Investing News Network. This article is not paid-for content.