Aphria and Tilray Merger Creates World's Largest Cannabis Company

A Aphria, a multinational in the cannabis industry, reached an agreement for the acquisition of 62% of the shares of Tilrayaccording to one release published on December 16th. The merger between both companies, pending approval from Tilray's shareholders, is expected to be completed in the second quarter of 2021.

Tilray Inc. and Aphria Inc., multinational companies with production licenses and operations in several countries around the world, in the recreational, food and medical markets, have agreed to merge their operations. The merger creates a new giant in the cannabis industry, which shows no signs of stagnating its growth.

The agreement encompasses all the shares issued and, therefore, all the capital, and brings together two of the best-known names in the market, creating an entity with an equity value of around 4,8 billion Canadian dollars (3,8 billion US dollars), according to the statement and interviews with the leaders of Tilray and Aphria last Tuesday. Combined group sales over the past 12 months outperform industry leaders such as Curaleaf Holdings Inc. e Canopy Growth Corp., totaling 874 million Canadian dollars.

Aphria and Tilray's combined earnings relative to other publicly traded competitors

The operation details

Aphria's takeover of Tilray is described in the media as a reverse merger. This operation is explained by the fact that Aphria is the company that is merged into Tilray, but the acquiring company (Tilray) is the subsidiary of the merged company (Aphria). In this way, Aphria is, in turn, the “mother” society.

The new company will retain the Tilray name and trade under its symbol on the Nasdaq (US stock market).

Under the terms of the agreement, Aphria shareholders will receive 0,8381 Tilray shares for each Aphria common share, while Tilray shareholders will continue to hold their shares without adjustment to holdings. Upon completion of the agreement, Aphria shareholders will own approximately 62 percent of Tilray's outstanding shares on a fully diluted basis, resulting in a reverse takeover of Tilray.

Ontario-based Aphria paid a premium (the difference between the total value of the deal and the company's face value on the stock exchange) of 23% to Tilray's closing price on December 15th. Tilray ended Tuesday's financial markets session with a closing value of US$7.87, down 50% at one year, while Aphria closed with 72% growth at one year, at nominal value. closing price of 8.12 dollars.

Geostrategic consolidation

“I realized that Aphria needed to expand outside of Canada and the merger with Tilray was a great response because it is a US-based company with large international assets,” said Aphria CEO Irwin Simon, who will serve as president. and CEO of the new group.

The agreement reinforces that cannabis, while still seen by some as a marginal investment, is a rapidly evolving sector, with legalization emerging in more and more US states and a growing number of European countries regulating its use. medicinal. In recent years, the sector has seen several operations between the various companies, some already reported by CannaReporter, with companies vying for positions and acquiring assets in this relatively recent industry characterized by the mutability of national and international regulations. Some examples highlighted by CannaReporter were the entry of Philip Moris into the Cronos Group, through the acquisition of a 45% shareholding, purchase of Holigen by Canadian Flowr, partnership between Tilray and pharmaceutical Sandoz, Aurora's acquisition of MedReleaf, or the acquisition of the first Portuguese medical cannabis company, Terra Verde, by EMMAC LifeSciences.

This merger of Tilray and Aphria assets represents an initial step towards the geo-strategic objective of creating a consolidated operation in the global cannabis sector.

From personal friendship to corporate marriage

Current Tilray CEO Brendan Kennedy founded Tilray through Privateer Holdings, a company managed exclusively with private equity until 2018, when it entered the Nasdaq market. Brendan will step down from the role of CEO of the combined company to a member of the board of directors.

Brendan Kennedy and Irwin Simon had known each other since 2018. However, it was not until 2020 that talks began with the aim of consolidating the operations of both companies. The details of the operation were carried out through digital means, due to Covid-19 restrictions, which made face-to-face meetings difficult.

The proposed management team includes 6 executives from Aphria and 4 from Tilray

The new company will sell cannabis products across Canada and “will be well positioned to look for growth opportunities” such as medical cannabis in Germany. The companies also stated that the Portuguese operation, namely Tilray's production unit in Portugal, will allow access to the European Union's internal market, free of customs costs.

Simon and Kennedy also explained that the agreement best positioned to take advantage of potential federal legalization in the US, and is also based on the prospect of an increase in legalization initiatives in Europe. Brendan Kennedy further praised Aphria's two assets in Germany – a cultivation operation and a stake in a German healthcare institution – characterizing them as particularly attractive. “We felt that with this deal we could not only win in Canada, but win in Europe,” he said.

Active in the beverage industry

The merger will also result in a combination of assets in the beverage sector. Aphria concluded in late November the acquisition of American craft beer company Sweetwater Brewing Company, which makes cannabis-infused drinks. On the other hand, the Tilray has an investigation agreement with Anheuser-Busch InBev. The combined US operations will focus on the Sweetwater brewery and Manitoba Harvest, which manufactures hemp and CBD products.

Simon also said there is interest in using Tilray's beverage plant in Canada for Aphria to develop beverages that contain THC, which is the active ingredient in cannabis. “The combined company is expected to have a strong and flexible balance sheet, cash balance and access to capital, giving it the ability to accelerate growth and deliver attractive returns to shareholders,” the joint statement reads.

Tilray shareholder approval required

Approval by Tilray's shareholders will be required to, among other things contemplated by the agreement, authorize the issuance of Tilray shares to Aphria shareholders under the agreement. The companies argue that the merger will reduce annual costs by about 100 million Canadian dollars before taxes during the 24 months following completion of the transaction.

Each of the directors and executives of Aphria and Tilray and certain major shareholders of Tilray have entered into voting support agreements agreeing to use the voting power conferred by the shares they hold in either Aphria or Tilray in favor of resolutions set out in the I agree. Completion of this transaction is scheduled for the second quarter of 2021 and includes the right to match higher bids and a reciprocal termination fee to both parties of $50 million.