'Shareholders are frustrated': Aphria investors divided on Green Growth's hostile bid – Financial Post


Shareholders of cannabis company Aphria Inc. appear to be divided over American retailer Green Growth Brands’ attempted hostile takeover of the Leamington-based company — some are painting the bid as “undervalued” and “futile,” while others seem to have lost faith in Aphria’s management and are welcoming change.

“We believe that GGB was simply trying to take advantage of a significant and untimely sell of the stock and genuinely would not have been able to extract the full value of Aphria that we believe still exists within the company,” said Steve Hawkins, president and CEO of Horizons ETFs Management Inc, the largest public institutional holder of Aphria stock.

The company has a number of passively managed cannabis funds that cumulatively own approximately 6.2 million Aphria shares, or 2.5 per cent of the Leamington grower.

On Wednesday, Aphria released a scathing statement against Green Growth’s hostile bid, rejecting the unsolicited offer and calling it “exploitative.”

“Regardless of their brazen attempts to suggest otherwise, GGB is asking Aphria shareholders to accept a substantial discount of their shares as well as delisting from both the TSX and NYSE resulting in a vast dilution of their ownership in Aphria,” the company’s independent board chairman Irwin Simon said in a statement.

Green Growth — a company with a market value of roughly $930 million — is bidding for Aphria, which has a market value three times that amount, in an all-stock offer of 1.5714 Green Growth shares for each Aphria share.

The hostile bid was announced back in December, just weeks after short sellers questioned the value of Aphria’s Latin American assets, and accused a number of company insiders — including outgoing CEO Vic Neufeld — of engaging in self-dealing through transactions that resulted in the purchase of the company’s Latin American holdings.

Aphria recently reshuffled its upper management, announcing the departure of Neufeld and co-founder Cole Cacciavillani, while tasking former alcohol industry executive Jakob Ripshtein and food industry magnate Irwin Simon to manage the company during the period of transition.

“We’re optimistic about the company. It is one of the bigger, and better capitalized licensed producers and in the long-term they are going to learn from these mistakes and improve corporate governance,” said Jason Wilson, President of Budding Equity Asset Management Inc., which manages the ETFMG Alternative Harvest ETF (MJ), a passive Canadian cannabis ETF.

The fund began investing in Aphria in the summer of 2018, when the company had divested its American assets, and now owns almost three million Aphria shares.

When you don’t even have a CEO in place, it’s hard to defend against the bid

Greg Taylor, chief investment officer of Purpose Investments

Wilson says his fund would have to drop Aphria shares if Green Growth’s bid is successful, because they’re not keen on companies with U.S. operations. “From a purely business perspective, it’s beneficial to us that Aphria’s structure remains as is,” he said.

But other major institutional shareholders appear to be supportive of Green Growth’s hostile bid for Aphria.

“Look, shareholders are frustrated with this company and the direction of the company. When you don’t even have a CEO in place, it’s hard to defend against the bid,” said Greg Taylor, chief investment officer of Purpose Investments, whose actively-managed marijuana fund took an even larger stake in Aphria as recently as Dec. 31, according to data from Bloomberg.

“As the U.S. market opens up, Canadian companies have to start looking at how to get into the U.S. The TSX listing shouldn’t be a hindrance,” Taylor said, who added that he is particularly concerned that Aphria’s only real value seems to lie in cultivation and pledges of increasing their run-rate revenue.

“The sector is evolving into more of a consumer packaged goods industry. This deal, given Green Growth’s expertise in retail, could be a nice way for Aphria to transition out of sheerly cultivation, and expand their product offerings internationally,” Taylor said.

Ohio-based Green Growth is backed by the Schottenstein family, most famously known for the retail brands DSW and American Eagle. The company has two cannabis retail store licenses in Nevada, and says that it is poised to receive seven more. Most recently, Green Growth struck an agreement with DSW to sell hemp-derived CBD personal care products at a number of DSW stores across the U.S.

An early investor in Aphria, who currently does not own stakes in either Aphria or Green Growth, and spoke to the Financial Post on condition of anonymity, was skeptical about Green Growth’s real value, and ability to bring in additional financing needed to finalize the takeover.

“They only have a couple of assets in Nevada, and they’re being valued at $900 million? There are a whole bunch of promoters circling this company, trying to boost the stock. Maybe they will, maybe they won’t,” the investor said.

On Aphria, the investor was equally bearish. “They seem to not have the ability to articulate their international strategy, except for the Latin American assets, which is ironically what has come under scrutiny.”

Green Growth did not respond to a request for comment. The company saw its stock dip by almost five per cent, while Aphria’s stock price plunged almost seven per cent, as news of the bid rejection broke.

Green Growth’s formal offer is due to expire on May 9.

• Email: vsubramaniam@postmedia.com | Twitter:



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *