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Nelson Peltz founding partner of Trian Fund Management LP. speak at the WSJD Live conference in Laguna Beach, California October 25, 2016. REUTERS/Mike BlakeMike Blake/Reuters

Part of cannabis and investing

Billionaire activist investor Nelson Peltz signed on as a strategic adviser to Aurora Cannabis Inc., lending his reputation and name recognition to the Canadian company in exchange for millions of stock options.

Mr. Peltz, who runs the activist investment firm Trian Fund Management LP, will work with Aurora on partnerships and global expansion. In return, Mr. Peltz has been granted options that allow him to purchase almost 20 million Aurora common shares for $10.34 a piece. The options vest over four years, and they expire after seven years.

The move comes as major Canadian cannabis producers scramble to sign export deals and to make international acquisitions. Across the industry, it is generally accepted that the Canadian market is oversaturated, so companies are looking abroad to grow and to live up to their rich valuations. At the same time, domestic producers are looking to sign partnerships with beverage and consumer products giants, to give them more legitimacy on the global stage.

As Aurora expands internationally, with recent transactions in countries such as Portugal and Britain, the company hopes Mr. Peltz’s relationships will help to forge new deals – especially as global consumer-products companies grow more comfortable with cannabis. “He is a Wall Street giant. He is a dealmaker. He has an enormous network of global contacts," Aurora chief corporate officer Cam Battley said in an interview.

However, two of Mr. Peltz’s most recent major bets have failed to deliver. Two years into its investment in Procter & Gamble Co., Trian is still struggling to turn the consumer products giant around. The fund has also taken a bath on its bet on General Electric, after the company’s share price collapsed in 2018. By the end of the year, Trian had lost about US$1-billion on the investment.

The Aurora partnership is an unusual one for Mr. Peltz. At Trian, he is best known for an aggressive, activist approach at iconic companies such as DuPont, PepsiCo and Kraft and agitating for shake-ups that include selling off divisions or slashing costs. Aurora, meanwhile, is still in its infancy.

The deal terms are also unique. Instead of buying stock up front, Mr. Peltz is taking stock options, and he hasn’t disclosed any interest in a board seat or shakeup. Aurora recently shuffled its directors, moving chair Michael Singer into the role of executive chairman in late February – a position that often provides for day-to-day management of the company. At the same time, Aurora announced that director Diane Jang had voluntarily resigned from the board.

The company’s shares climbed 13 per cent after the news on Wednesday, to close at $12.02. “We believe [Mr. Peltz] could be instrumental in facilitating discussions with large consumer products companies," GMP Securities analyst Martin Landry wrote in a research report.

But it is unclear what exactly Mr. Peltz will ultimately do for Aurora. Unlike Canopy Growth Corp., which secured several billion dollars in funding from Constellation Brands to help finance its growth, Aurora at this point seems to benefit the most from the legitimacy Mr. Peltz provides. However, he does not yet have any skin in the game.

Mr. Peltz also won’t say whether he plans to use any stock he purchases to make an activist play at Aurora. Mr. Battley said the two parties had been in talks for months and had met several times face-to-face in New York. Asked whether he worries that Mr. Peltz could push for action such as a sale of the company, Mr. Battley dismissed the idea. “That’s where we’re very much aligned, on a long-term opportunity," he said.

The deal structure suggests Mr. Peltz views the opportunity in a different light than his usual investments. He is teaming up with Aurora on his own, outside of Trian, and any share purchases will be made with his own money. Mr. Peltz declined to comment for this story.

In a statement, Mr. Peltz said he plans to evaluate Aurora’s “many operational and strategic opportunities, including potential engagement with mature players in consumer and other market segments.”

If Mr. Peltz ultimately exercises all of his options, he will own 2 per cent of Aurora, based on the current number of shares outstanding. At the moment, the company’s largest shareholder is Vanguard, with a 2.04-per-cent stake, according to Refinitiv.

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