On Friday, Nov. 17, CanniMed Therapeutics Inc. (TSX: CMED) announced its acquisition of Newstrike Resources Ltd. (TSX Venture: HIP) in an all-stock agreement while ignoring Aurora Cannabis’ unsolicited acquisition offer, prompting Aurora to launch a formal takeover bid for CanniMed.
CanniMed’s acquisition of Newstrike was a strategic move to get into Canada’s recreational and medical markets, and the company hopes to reach a targeted production capacity of 45,000 kg of cannabis per year by 2019. Newstrike, which is backed by the Tragically Hip (which explains its “HIP” ticker symbol), is the parent company of Up Cannabis Inc., an Ontario-based licensed producer.
The details of the CanniMed and Newstrike deal
The deal, which is still subject to shareholder approval, will see the creation of a combined entity with a market cap in excess of $500 million.
Newstrike shareholders will receive 0.033 CanniMed common shares for each Newstrike common share they own. Once the deal is completed and approved, Newstrike will be a wholly-owned subsidiary of CanniMed, according to the press release, and CanniMed shareholders will own approximately 65% of the combined entity and Newstrike shareholders will own the other 35%.
Brent Zettl, CanniMed’s CEO and President, said, “This is a transformational strategic acquisition for our company, which will position CanniMed and Up Cannabis [whose parent company is Newstrike] together as premium players in the emerging recreational cannabis marketplace”.
The agreement also contains non-solicitation provisions although there are certain circumstances where either company may terminate the deal if they receive a better offer- but the company who terminates will have to pay a termination fee. For CanniMed, the termination fee is $9.5 million (CAD), and for Newstrike, that fee is $5 million (CAD).
Certain Newstrike shareholders also get to nominate two board members with the right to nominate one person to the board each year as long as they hold a minimum of 10% of CanniMed stock.
Aurora vs CanniMed: The hostility heats up
According to the Toronto Star, Aurora Cannabis called CanniMed’s acquisition of Newstrike “extremely troubling”, saying, “at no point did CanniMed try to engage or otherwise entertain discussions with Aurora regarding the significant offer that had been presented to their board for CanniMed shareholders prior to entering into the Newstrike Resources agreement”.
For its part, CanniMed said its board has yet to receive a formal offer from Aurora and so it “continues to advise shareholders to take NO action with respect to the unsolicited proposal”.