Green Growth has begun soliciting proxies from Aphria shareholders in their attempted hostile takeover. Here’s what that means – and what you should do if you’re caught in the middle…

Many readers have written in with questions about Green Growth Brands’ (CSE: GGB, OTC: GGBXF) hostile offer for Aphria Inc. (NYSE: APHA).

Although neither of these companies is currently in our Cannabis Investor’s Report or Cannabis IPO Insider model portfolios, it is important that members of the National Institute for Cannabis Investors pay attention to how this deal shakes out.

You probably remember my coverage of this hostile takeover attempt late last year. At the time, I explained how the attempt was yet another example of the rapid consolidation of the cannabis industry.

Mergers and acquisitions are vital to this stage of the industry’s growth, and we cannot undervalue the significance of a hostile takeover to that growth, regardless of how the Aphria/Green Growth story plays out.

Since that original news broke, there’s been an important development. Specifically, Green Growth Brands is soliciting votes from Aphria shareholders in hopes of gaining enough support to make the deal happen.

Aphria, for its part, says that Green Growth’s offer is inadequate.

So, if you happen to own Aphria’s stock and received a form from Green Growth, you might be wondering: “What’s my best course of action?”

Today, even though these stocks aren’t in our portfolios, I’m going to answer that question for you…

What Should Shareholders Do?

At current prices, Aphria is right that Green Growth’s offer is not adequate, and I do not recommend supporting Green Growth Brands hostile takeover. The good news is that you do not need to take any action to “vote” to reject the offer.

Just ignore the documents you received from Green Growth Brands.

Here are more details on why this offer is inadequate…

The Green Growth Brands offer would give Aphria shareholders 1.5714 shares of Green Growth Brands for each Aphria share owned. Green Growth Brands says that their offer is worth C$10.00 per share, since it has new equity investors lined up to purchase Green Growth Brands equity for C$7.00 per share. Basically, Aphria is saying that even though their stock trades at C$4.93 per share, if you assume that it is worth the C$7.00 that it has new investors lined up to pay, then its offer is worth C$10/share.

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However, there are two problems with Green Growth’s argument. The first is that while it’s great that Green Growth Brands is able to raise new equity at $7.00 per share, the stock is not trading anywhere near that level. It is trading at $4.93 per share. When you do the math, $4.93 times the 1.5714 shares is only $7.74 per share.

And Aphria is trading at $13.37 per share.

The second problem is that even if Green Growth were to start trading at $7.00 per share, that price times the exchange rate is only $11.00 per share.

That’s still a discount to where Aphria is currently trading. So no matter what assumptions you make, Aphria shareholders lose by taking Green Growth’s deal.

Looking Forward

The idea of an Aphria/Green Growth combination is not a bad one. I like the idea of a cross-border cannabis powerhouse, even if it couldn’t do much business across that border until the U.S. federal government makes cannabis legal across the country.

The combined resources of such a company would be formidable, and it would offer branding opportunities in the two largest cannabis markets even before the federal government acts.

In this case, there would be some downsides, mostly the loss of Aphria’s coveted NYSE and TSX listings, but the Canadian Securities Exchange is a sufficient liquidity provider these days.

And even though Green Growth Brands is the aggressor in this battle, its current shareholders would end up owning less than half the resulting company. So unless Green Growth offers a real premium to Aphria shareholders, what it’s really asking Aphria shareholders to do is force Aphria to take over Green Growth Brands!

So, to reiterate, take no action on any forms you might have received from Green Growth Brands. I like both these companies, and I’m looking forward to the end of this unfortunate chapter in their growth.

Thank you for being an important member of the National Institute for Cannabis Investors,


Greg Miller

Executive Director, National Institute for Cannabis Investors

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Comments

21 responses to “Green Growth Ups the Ante in Its Takeover Bid”

  1. Thanks Greg for addressing this issue. Your response was very helpful and timely. Thanks again. wayne

    • Thanks Greg, bought APHA after the first take over attempt @3.85.. maybe like HEXO I should take my profits and move on….

  2. Hey Greg morning how are you? Thank you for that information. I currently own a position in Alphria. I had contemplated purchasing a position in Green Growth Brands, I have not done so as of yet. As always you are on top of our business. Thank you and your team so much.I hope you have a great day, much success to all of us in the future.!!!!

  3. Thx. I was contacted two wks ago and told to do nothing. At $7 a share I would loose more than half of original investment. That’s disgraceful. Should never be allowed. Thx for listening.
    .

  4. I have both stocks and was very glad to hear your take on the situation. I will hold both for the time being. Greg, thanks for keeping all of us up to date.

  5. Sincere thanks Greg! I have shares in Aphria and have been encouraged by it’s recent performance. Almost bought shares in Green Growth recently, now glad I didn’t and willl eagerly monitor this situation. You providing this important information to all NICI members in such a timely manner instead of several days late, enforces my trust in you and NICI. Now I know for sure that I made a right to decision to join!

  6. Greg,
    Good article on how to walk through an analysis of this hostile takeover bid. I currently own both sticks and had received solicitations from each company. I “ran the math” last week and voted to do nothing. Either Green Growth Brands will place a serious offer on the table that gives the shareholders of Aphria a substantial premium in exchange for their vote to support the takeover or it will walk away. We should not accept a discount (read that – loss) on our Aphria shares to enrich Green Growth Bands. Makes little sense. At today’s valuation an offer in the $17.50 per share range becomes palatable. I say this even though it would potentially hurt my current Green Growth Brand position. This analysis is from the Aphria side.
    Keep up the good work!

  7. Very helpful analysis
    Why buy Green growth brand shares at this time. Doesn’t make sense
    If Feds legalize weed use than Aphria will take off like a rocket!!!

  8. Thanks Greg I haven’t been able to find and useful information on this takeover bid now it makes sense

  9. I’ve owned both stocks since before I heard of the hostile takeover bid. Had I heard earlier, I would not have brought GGB on principal. Don’t get me wrong. I am all for mutually beneficial M&As,but not

  10. Not into hostile takeovers. However, both of the stocks are growing well in my portfolio, so will hold both for now. (Was unprepared for data limits)

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