Green Growth Brands Plans Hostile Offer for Canada's Aphria

(Bloomberg) -- U.S. cannabis retailer Green Growth Brands Ltd. is planning to launch a hostile takeover bid for Aphria Inc. that values the Canadian marijuana producer at almost C$2.8 billion ($2.1 billion).

Columbus, Ohio-based Green Growth plans to offer C$11 per share in an all-stock bid for Aphria, according to a statement Thursday. That's a 46 percent premium over Aphria's closing price on Monday.

Aphria, one of Canada's biggest pot producers, became an easy target after its share price almost halved in two days when short-sellers Quintessential Capital Management and Hindenburg Research alleged on Dec. 3 that the company paid inflated prices for assets held by insiders. The Leamington, Ontario-based company vigorously defended itself, saying the purchase was a transaction negotiated at arm's length and that both companies retained professional financial advisers.

“They're currently at an attractive value in the market,” Green Growth Chief Executive Officer Peter Horvath said in a phone interview, adding that his company, which makes beauty and wellness products using cannabis-derived ingredients, had been in talks with Aphria for a few months and was impressed by its capabilities after touring its production facilities.

While Quintessential's allegations are “something to be concerned about,” the transaction, if successful, would take at least three months to complete, Horvath said. “In that time period, we should have an understanding if there is any overhang at all.”

Stock Jump

Aphria's U.S.-listed shares jumped as much as 33 percent in late trading after Bloomberg first reported on Green Growth's plans. They were up 24 percent to $6.89 at 6:45 p.m. in New York. Tamara Macgregor, a Aphria spokeswoman, didn't immediately respond to a phone call and email requesting comment.

The offer would give Aphria shareholders 1.5714 common shares of Green Growth for each Aphria share. Green Growth discussed a friendly offer with Aphria's board before announcing its intention to launch a hostile bid and believes it has support from investors holding about 10 percent of outstanding Aphria shares, according to the statement.

Green Growth approached Aphria's board about a week ago with a proposal and has also acquired about 3 million shares in the company, Horvath said.

“We were looking for the most positive and friendly way to do this, but I think ultimately, we felt like a delay would be unnecessary,” given the premium being offered, said Horvath, who previously held executive positions at Victoria's Secret and American Eagle Outfitters Inc. “We wanted to be proactive and reach out directly to the shareholders.”

Pot Consolidation

The bid for Aphria marks further interest in an industry that BMO Capital Markets estimated could reach C$120 billion in recreational sales globally by 2025. Canada was the first Group of Seven country to legalize the drug for recreational use on Oct. 17 and more U.S. states are moving in that direction though it remains banned at the federal level.

Budweiser brewer Anheuser-Busch InBev NV teamed up to run a research partnership with Tilray Inc. earlier this month, each investing $50 million, though Tilray will remain independent. Molson Coors Brewing Co. signed a joint venture with Hexo Corp. in August, while Constellation Brands Inc. is now the biggest shareholder in Canopy Growth Corp. Tobacco company Altria Group Inc. announced a $1.8 billion investment in Cronos Group Inc. this month.

The cannabis market in the U.S. and Canada combined is expected to reach $47 billion by 2023, Horvath said.

Current laws wouldn't allow pot produced by Aphria in Canada to be shipped to Green Growth's retail business in the U.S. “We're making this decision based on taking the talent from both organizations and leveraging it across the different geographies,” Horvath said. “You can't move product but you can certainly transport intellectual property and capability. It's about combining our consumer expertise with their grow expertise.”

Green Growth is being advised by Canaccord Genuity Group Inc., with Norton Rose Fulbright Canada LLP as legal adviser.

To contact the reporters on this story: Scott Deveau in New York at sdeveau2@bloomberg.net;Natalie Obiko Pearson in Vancouver at npearson7@bloomberg.net

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Carlos Caminada, Jacqueline Thorpe