Cannabis producer Aphria calls U.S. company’s proposed hostile takeover ‘quite risky’

Aphria Inc. says a hostile takeover bid presented to its board by Green Growth Brands is “quite risky” and significantly undervalues the company, which is one of the biggest players in Canada’s legal cannabis market.

Ohio-based Xanthic Biopharma Inc., which does business as Green Growth Brands, announced the hostile takeover bid after stock markets closed Thursday.

Green Growth says its offer values the Ontario-based cannabis producer at $11 per share, or $2.8 billion at the time of the announcement. But Aphria said Friday that estimate is based on a hypothetical, inflated value for Green Growth stock.

Irwin Simon, chairman of Aphria’s board, said in a statement Friday that “their proposal falls short of rewarding our shareholders for participating in such a transaction.”

“Further, the proposed offer is quite risky given GGB’s condition to complete a brokered financing at a price that is more than double the recent average of their share price, as a key term to the proposal,” Simon said.

Cannabis companies’ shares volatile

Shares of most publicly traded cannabis companies have been volatile over the last few months, including those of Aphria Inc., after its planned acquisition of LATAM Holdings Inc. came under fire in early December.

In early December, short-sellers Quintessential Capital Management and Hindenburg Research alleged that the company’s acquisition of the LATAM Holdings assets in Colombia, Argentina and Jamaica totalling $280 million from Scythian Biosciences were “largely worthless.”

Gabriel Grego, of Quintessential Capital Management, argued Aphria had spent $700 million buying up subsidiaries which don’t add any value to the company and did little besides enriching insiders at the companies that were taken over.

Aphria shares closed at $7.57 on Thursday on the Toronto Stock Exchange, valuing the company at $1.89 billion before the hostile bid was announced. Their shares were up 17 per cent in pre-market trading Friday, valuing Aphria at $2.2 billion.

Xanthic shares closed at $4.98 on Thursday on the Canadian Stock Exchange, valuing the company at about $890 million.

Short-seller Hindenberg levelled fresh criticism Friday, suggesting the proposed takeover may not be hostile at all.

It said Green Growth Brands’ second largest shareholder is a fund sponsored by Green Acre Capital, “a firm that lists none other than Aphria CEO Vic Neufeld on its board of advisors.”

“Aphria has invested directly in the fund and therefore already owns a significant stake in GGB,” the statement said.

Additionally, its statement said Green Growth recently listed a current Aphria board member on its own board of directors, and that other recent Green Growth directors have “obvious affiliations with Aphria.”

Green Growth CEO Peter Horvath said in a statement Thursday that an acquisition of Aphria would increase value for shareholders of both companies.

“We are confident that the significant premium we are offering and the opportunity to participate in the growth of a stronger, combined company are so compelling that we are taking our offer directly to Aphria’s shareholders,” Horvath said.

But Hindenberg says that’s not the case.

Its statement said Green Growth was just formed this year, has almost no revenue or tangible assets, and has limited operations. “Despite this, its newly listed, thinly traded stock has spiked to a market cap of $890 million on average daily dollar volume of only $1.3 million.”

Hindenberg called Green Growth “largely a worthless entity with numerous signs of Aphria related-party influence.”

“This entire proposed deal strikes us as merely an epic next step of Aphria’s brazen shell game,” the statement said.

Takeover offers made directly to shareholders without approval of the target company’s board of directors are considered to be hostile bids.

Shares of publicly traded companies selling cannabis have been volatile over the last few months. (Graeme Roy/Canadian Press)

Aphria, which has its main operations in the southwestern Ontario community of Leamington, said it has established an independent committee of directors to consider any formal offers it receives.

In the meantime, Aphria said it would continue to execute its current corporate strategy.

Class-action bid filed

Earlier this month, a Toronto law firm said it filed a proposed class action against Aphria and its chief executive and financial officers after the company was targeted by short-sellers.

Koskie Minsky LLP alleges Aphria made false and misleading statements related to its acquisition of LATAM Holdings, a claim that has not been tested in court.

The proposed class action came after the short-sellers’ allegations.

Aphria said on Dec. 6 that it had set up a special committee of independent directors to review the LATAM acquisition.

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