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Report On Business Aurora, CanniMed shares jump as takeover talks extended

Cannabis seedlings at the Aurora Cannabis facility in Montreal are seen in this file photo

Ryan Remiorz/THE CANADIAN PRESS

Aurora Cannabis Inc. and CanniMed Therapeutics Inc. have extended talks over what could be Canada's biggest marijuana-industry takeover deal, pushing their shares sharply higher on Monday.

The marathon discussions, which began last week, involve a sweetened offer for CanniMed from Aurora, which had previously sought to acquire the medical-cannabis grower in a hostile, all-share bid. Sources close to the discussions said Aurora is proposing a bid that is well above its previous $24-a-share offer that CanniMed had rejected. It could also include a cash component, rather than just a share swap.

The new proposal could be worth about $1-billion, the sources said. However, no final terms had been reached by late Monday, prompting CanniMed and Aurora to extend their talks beyond a deadline of 5 p.m. ET.

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"There is no certainty that any such discussion will result in an agreement among the parties in respect of a transaction," CanniMed said in a statement.

CanniMed shares jumped nearly 9 per cent to an all-time high of $37.79 on the Toronto Stock Exchange on Monday.

The outcome could leave a smaller cannabis producer without a deal. The talks have proceeded on two tracks: one that includes Aurora also buying Newstrike Resources Ltd. and one that does not, according to sources. CanniMed had previously agreed to buy Newstrike, and last week the target's shareholders voted in favour of that deal.

Aurora's initial bid was conditional on CanniMed abandoning its deal with Newstrike, which is best known for its celebrity backing – Canadian Music Hall of Fame rockers the Tragically Hip have a stake of more than 5 per cent.

CanniMed shareholders were set to vote on the Newstrike deal on Jan. 25. There has been no word on whether that vote is still expected to take place.

Officials with Aurora, CanniMed and Newstrike declined to comment.

The often-heated takeover battle had previously presented CanniMed shareholders with a choice between a friendly deal for Newstrike, and a hostile takeover by Aurora, the country's second-largest legal marijuana producer by market capitalization.

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A massive run-up in cannabis stocks in recent weeks had pushed CanniMed shares well above the initial Aurora bid price. It had previously offered 4.53 of its shares for each CanniMed share, but the exchange had a limit of $24 per CanniMed share. CanniMed is now trading well beyond that level.

For its part, Newstrike's stock surged 49 per cent on Monday to $2.19, giving the tiny company a market value of $850-million. Newstrike investors stand to get 0.033 of a CanniMed share if that deal went through as proposed. CanniMed's current share price puts the value of this transaction at $486-million, or $1.25 a share.

Despite the prospect that it will shell out much more than it initially expected to close a deal, Aurora stock jumped nearly 8 per cent to $14.50, also a company high.

The table has been reset quickly for all involved. Last week, it had appeared the CanniMed-Newstrike deal was all but done, potentially leaving Aurora empty-handed. Newstrike shareholders voted overwhelmingly in favour of the takeover and influential proxy advisory firms Institutional Shareholder Services and Glass Lewis recommended CanniMed's investors follow suit.

Senvest Management LLC, a New York-based hedge fund with 8 per cent of CanniMed's stock, wrote to Aurora's board saying its unsolicited bid undervalues CanniMed and that it had voted its shares in favour of the Newstrike takeover. That tipped the scales in favour of the CanniMed-Newstrike tie-up.

That arrangement provides for either of the companies to enter into talks with a third party before their respective shareholder meetings if a superior deal is tabled. Aurora approached CanniMed late Wednesday, prompting CanniMed to postpone its meeting so it can hear out its previously hostile suitor.

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