This past Tuesday, Aphria (TSX: APH) engaged in an unusual business move, choosing to lower their initial offer to buy marijuana stocks from Nuuvera Inc (NUU:Venture) and reportedly aiding the company in its acquisition of subsidiary Avanti Rx Analytics.
The original deal, struck at the end of January, had Aphria purchasing Nuuvera for $670 million USD in cash and marijuana stocks. The revision this week, however, lowered the offer from $1 to 60 cents a share and Nuuvera’s total share values to $447.9 million USD.
With this amendment, Nuuvera agreed not only to the 60 cents per share in cash, but also ownership of 0.3546 of an Aphria share. In its Tuesday press release, Nuuvera noted “the consideration has been reduced… provided that the cash consideration will be increased to the extent the company’s unrestricted cash exceeds the revised required level.”
Nuuvera’s receptiveness to a lower selling price leaves unanswered questions, as they provided no explanation for why they agreed, nor did they explain how lowering the price for Aphria would help Nuuvera in its own acquisition of another marijuana stock in Canada, Avanti Rx.
The only statement Nuuvera offered, in a separate press release, implied the company agreed with the amendment for the purpose of funding the remainder of its acquisition of Avanti – for an estimated total of $43 million. Avanti Rx Analytics serves the cannabis industry through provision of research and testing assistance.
Nuuvera’s chairman, Ronald Schmeichel, offered these words: “The acquisition of Avanti is an important step in the history of Nuuvera and is expected to result in synergies at the combined Nuuvera/Aphria which will enhance the value of the arrangement to shareholders of Nuuvera.”
Nuuvera stands to gain Avanti’s remaining interest from a single minority shareholder, and with it, the acquisition of Avanti’s Ontario-based facility.
However, neither Nuuvera or Aphria were available for further comment immediately following the press release.
On the marijuana stocks index end, both company’s shares have dropped since the first announcement of their deal on January 29.
The original agreement struck had Aphria purchasing shares at $1 each, with 0.3546 of an Aphria share thrown in for each of Nuuvera’s shares purchased. In this original arrangement, Nuuvera’s marijuana stocks were valued at roughly $8.50 each.
This value was based on Aphria’s volume-weighted average share price over a 10-day period, which was $21.15 when the period ended on January 26. In contrast, Nuuvera’s volume-weighted value over the same 10-day period was $6.51.
After Tuesday’s announcement, Aphria marijuana stocks were up 8% – $1.13 per share – trading in the early afternoon at $15.19. Nuuvera’s stocks bumped up 2.52% – 14 cents per share – to $5.70.
By the end of this week, Aphria’s shares will close on the Toronto Stock Exchange at $14.06, while Nuuvera’s will close on the TSX Venture Exchange at $5.56. A recalculation of the share value, based on Aphria’s week-ending share price and the amendment of 60 cents per share plus 0.3546 of a common Aphria share, brings it to $5.59 per share.
Aphria reported to have sought and received consent from shareholders who had signed lock-up agreements before reducing its offer. Together with Aphria’s previously-owned shares of Nuuvera, the company holds roughly 65% of Nuuvera’s outstanding shares plus more than 57% of Nuuvera’s requisite minority shareholders.
The boards of both companies sought counsel before agreeing to the amendment. Cormark Securities Inc, Aphria’s financial advisor whose opinion was sought by its board of directors, concluded that the new amendment is “fair, from a financial point of view, to Aphria.”
And Cannacord Genuity Group Inc, from whom Nuuvera sought legal and financial counsel, also concluded that “the consideration to be received by Nuuvera shareholders is fair, from a financial point of view, to such shareholders.”
Does that make Aphria a marijuana stock to buy now?
Aphria set the expected close date for the deal in April, reportedly on schedule. With all the deals Aphria is making, it’s certainly one of the marijuana stocks to invest in.
(For more on Aphria and pot stock investor recommendations, read The Best Marijuana Stocks for Long Term Investing.)