Aphria Inc. was accused by a short seller of being part of a large network of acquisitions and marijuana-focused acquisitions designed to enrich insiders at the expense of shareholders.
Aphria has not adequately resisted these demands. But now an affiliate, which just completed a reverse merger last month, is trying to acquire Aphria in a deal that could protect the same investors without helping other shareholders.
On Thursday evening, Green Growth Brands Ltd.
GGBXF, + 3.14%
publicly announced an all-stock deal for Aphria
APHA, + 12.39%
APHA, + 12.55%
according to which the Canadian pot producer would estimate more than $ 2 billion. To achieve this $ 2 billion figure, some fantastic calculations are needed: Green Growth values its own shares at $ 7 C, even though they exceeded only $ 5 per share on the Canadian Securities Exchange for the first time on Friday morning.
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. Executives from the two companies had a "friendly" meeting on Thursday, with Green Growth investing in its proposal and attempting to secure an exclusive deal, CEO Peter Horvath said Thursday in an interview with MarketWatch. "I think it's technically a hostile takeover," said Horvath.
Green Growth and Aphria have a rather long and friendly history in which every real hostility has now arisen. Green Growth's biggest backer, billionaire family Schottenstein, worked with Aphria to start a medical marijuana pharmacy in Scotland's hometown of Ohio in 2017. The two companies are also reported to share some players, including Aphria's board member and former Green Growth board member Shawn Dym, as short sellers, which Hindenburg Research announced on Friday morning.
Earlier research into Aphria von Hindenburg and Quintessential Capital Management led to a sharp decline in the company's share price, but management has barely addressed any specific allegations made by the trader. Aphria reportedly plans to sack his long-standing law firm Stikeman Elliot, which was responsible for advising Aphria on several questionable asset purchases highlighted by the short seller
Aphria may also have hinted at what was done in an internal investigation by removing Chief Vic Neufeld – an important target of the Short Selling Theory – was found to be the chairperson in a low-profile announcement that was made right after the public announcement of Green Growth. The timing could lead to the assumption that the two measures have been coordinated to reduce the impact impact of the second. Neufeld is a member of the Green Acre Capital Advisory Board, which contributed more than $ 30 million to Aphria during the first quarter of the fiscal year, investing in Green Growth through one of its funds.
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Aphria has directly addressed this relationship in a statement on Friday morning that states the offer "the company significantly undervalued" and the proposed transaction associated with significant risks to shareholders. Aphria noted Green Acre's investment in Green Growth and said that the independent committee that is reviewing the takeover bid has no connection to either Green Growth or Green Acre.
Although Green Growth's offer could support Aphria's assessment, there are still worrisome large investors still involved in Aphria. Green Growth was floated less than two months ago by a reverse merger of the CSE – it is even listed on the stock exchange under the former name of Xanthic BioPharma Inc., the stock exchange. A takeover would force the merged entity to short-term. You can trade in second place in Canada on the stock exchanges and over-the-counter markets instead of the current houses for Aphria shares, the Toronto Stock Exchange and the New York Stock Exchange. Green Growth reported modest revenue of approximately $ 1 million in the last quarter, with losses of approximately half that amount and zero revenue in the same quarter last year.
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Switching to the CSE would mean that many large institutional investors could not own Aphria shares. As MarketWatch has reported, the CSE is not liquid enough to handle large deals, but has flourished in recent years among US pot companies, as no major stock exchanges would accept stock market listing of companies that openly violate federal laws. And it's an open question as to how US investors can take over shares in Green Growth because it violates federal law.
All of these complications point to a deal that is unlikely and perhaps should not. fill. If Aphria is legitimate, it's worth more than Green Growth offers. If there were significant ethical issues within the company, a related party transaction would only temporarily offset them. But in the long run they would stay. In any case, this bid does not seem to be a reason for the increase in the shares of Aphria.
The Aphria shares gained on Friday. US listed equities rose 12.4% per day, while TSX listed equities rose 12.6%. The entire sector appeared to benefit from the week's close of trading: US listed shares of Tilray Inc.
TLRY, + 5.73%
gained 5.7%, Aurora Cannabis Inc.
ACB, + 2.55%
ACB, + 4.71%
added 2.6%, Canopy Growth Corp. increased by 2.1%
CGC, + 2.09%
WEED, + 2.19%
and Cronos Group Inc.
CRON, + 0.97%
CRON, + 1.36%
gained 1%. The ETFMG Alternative Harvest ETF
MJ, + 4.18%
which recorded shares from marijuana, rose by 4.2% a day.