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This was the first unsolicited public takeover bid in the Canadian cannabis industry, and the complexity and complexity of the operation.
Aurora Cannabis Inc., one of the largest cannabis companies in Canada, submitted a proposal to acquire all of the common shares of CanniMed Therapeutics Inc. in mid-November 2017; which triggered a nasty battle between the two publicly traded medical marijuana growers that would not be resolved until the end of February 2018. [19659002] In the intervening months, CanniMed attempted to thwart this hostile offer by rallying its Board of Directors to support the ongoing acquisition of another marijuana company, Newstrike Resources Ltd., a transaction enthusiastically approved by one of Newstrike Newspapers. shareholders – iconic group The Tragically Hip.
This counter-development, however, was problematic because four large shareholders of CanniMed, who together controlled 38% of its outstanding shares, had first asked Aurora to acquire CanniMed. "When you have a solid foundation like that, you hope it could be a friendly transaction," says Jillian Swainson, Senior Vice President and General Counsel of Aurora, who worked for Aurora at Brownlee's office in Toronto. Edmonton [19659005] LLP when the takeover was first proposed
It was all but friendly.
The transaction, which was at the time most important in the history of cannabis, was marked by insider accusations, a prosecution of $ 725 million alleging " Multiple allegations of wrongdoing "of Aurora against CanniMed and concurrent hearings before Ontario. Securities Commission (OSC) and Saskatchewan Financial and Consumer Affairs Authority (FCAAS) to examine issues raised by both parties (CanniMed is based in Saskatoon)
The hearings aroused a lot of interest for more than the opposing parties. They marked the first time that a hostile takeover bid was being presented to regulators as a result of the adoption of a new regime (NI 62-104) issued by the United States. Canadian securities regulators in February 2016 governing take-over bids in all Canadian jurisdictions. Needless to say, there was considerable interest in what would emerge from hearings in law firms across the country.
As the CanniMed case progressed, Aurora was busy on at least two other fronts. One involved the acquisition of a minority stake in Liquor Stores NA Ltd., an Alberta company that operates 231 retail liquor stores throughout the country. province. The other announcement that Aurora, headquartered in Vancouver and with a 55,000 square foot cropping facility in Cremona, Alberta, has entered into an agreement to supply medical cannabis products to Shoppers Drug Mart Corporation.
However, these negotiations were a children's game compared to the CanniMed deal. The hostile takeover bid was so unpleasant, says Desmond Balakrishnan, Aurora's legal advisor, co-chair of Entertainment, Gaming and Sports at the Vancouver office McMillan LLP Aurora's CEO [19659005] Terry Booth told him, "If I call and tell you that we are considering another hostile takeover, come and kick my balls."
The news of various commercial initiatives of Aurora has come to a Canada and many Canadian law firms are preparing for the legalization of marijuana for recreational purposes, promised by the federal Liberal government. "We were a bit comfortable [towards the cannabis market] until we received a call, perhaps in the fall of 2017, from Bank of America," says Patricia Olasker Associate of Phillips Davies Ward & Vineberg LLP in Toronto and co-author of the April 2018 article, "The Cannabis Frenzy".
The bank needed to work on a 9.9% transaction that Constellation Brands, the giant US beverage that makes Corona beer, among other products, into Canopy Growth, an Ontario-based cannabis company. . "Once we realized that our leading customers were starting out in this industry, directly or indirectly, we realized that we had to be smart."
Davies Ward's reaction was not a problem. was not rare. nation, from the shops to the largest national, established cannabis practices. "We are now talking fairly regularly to our customers about this industry," says Olasker, "so as to stay on top of the four or five big companies in this area."
The interest of its customers is undoubtedly fueled by predictions that the cannabis industry is going to be a big and lucrative as soon as legalization occurs. In January 2018, Statistics Canada estimates that Canadians spent $ 5.7 billion on marijuana in 2017, 90% of which was for illegal, non-medical purposes. This figure came about a year after the large accounting firm Deloitte estimated that the industry could be worth $ 22.6 billion a year once the drug decriminalized.
With so much potential on the line, it's easy to understand what attracted Aurora, who is known for his ability to build growing facilities – in April he announced his intention to build a greenhouse 1.2 million square feet in Medicine Hat; he had already begun construction of a 800,000-square-foot facility in Edmonton – to seek synergy with CanniMed, renowned for the quality of its medical marijuana.
Aurora's first offer to CanniMed in mid-November was a $ 582 million, or 114 million shares of Aurora at $ 24 per share, or 57% more than its closing price that day. "We have received the advice of two financial advisers that this offer was not fair," states Philippe Tardif badociated with the Toronto office of Borden Ladner Gervais LLP which represented CanniMed. "They thought the Newstrike deal could create more shareholder value." As a result, on November 17, CanniMed and Newstrike announced that they had reached an understanding agreement that valued the deal at about $ 197 million. of dollars
. requested the OSC and FCAAS to obtain an exemption from the minimum filing period of 105 days required under Regulation 62-104, up to 35 days. "Everything in the cannabis industry is moving incredibly fast," says Swainson. "There is never time to waste, so we felt that there was some degree of urgency to the transaction." CanniMed is opposed to the reduction.
CanniMed has established a special committee of independent directors to advise it on both potential transactions. He then countered Aurora's official bid, sent on November 24, by adopting a shareholder rights plan ("poison pill"), claiming that he was "very worried" that he was "not very worried" that he was "in a hurry". Aurora, by "secretly" securing agreements from four shareholders of CanniMed, Aurora, on his side, asked the regulators to put an end to what he considered an "oppressive" rights regime
December 11, CanniMed Special Review The Committee asked the OSC and FCAAS that Aurora 's bid be made the subject of a. an "insider's offer" on the grounds that the stranded shareholders acted "jointly and in concert with Aurora".
did not take long to obtain a decision. On December 22, the OSC and FCAAS issued a joint order prohibiting the trading of the shareholder rights plan, rejecting Aurora's request to reduce the minimum period of 105-day submission and rejecting CanniMed's application.
"The insider offer was quite innovative," Donald Belovich a Toronto partner in the mergers and acquisitions group at Stikeman Elliott ] LLP and Legal Adviser to the Special Committee. "You do not get discovery, what you would do in a court.It is an abbreviated and expedited process, which in many ways is very good because you can get quick decisions. The disadvantage is that without all these documentary discoveries and cross-examinations, you do not have all the facts in front of the decision makers.I think [the regulators] has said that it's not a problem. There was not enough information.We have no proof. "
According to Aurora's Swainson:" We did not do it.The real facts can be a very strong refutation. "
As for Aurora's claim for a minimum of 35 days, Belovich says," I think regulators have seen this as a little stretchy and creative. "
If the regulators had also considered the machinations of the hostile bidding process, what they would have seen was a joint venture. lusty and devouring for both parties. "If you asked our client, [this experience] was like pushing a raft on the Styx River," says Balakrishnan, who estimates that "about 35 lawyers [who] can not hear about anything when they're in Opposite camps "were working on processing and regulatory hearings at any time. "Our client would describe this as being damaging to both brands and costing tens of millions of dollars in consulting fees, legal fees, accounting fees, human capital."
The business was made more difficult by the realities of the Canadian process. "Each sheet of paper had to be translated into French, an offer circular had to be in both languages, we had to file in each province and you had to do everything in strict time," says Balakrishnan. the process, we had a daily call of three months, including weekends. "
While Aurora and CanniMed were clearing their way into the water, an unsurprising event began. to play a role in resolving the conflict.When Aurora embarked on the adventure with the intention of acquiring CanniMed in mid-November 2017, its shares traded at 6, $ 24 a share On November 24, when he officially announced his bid, he had risen slightly to $ 7.24, but in mid-January he had almost doubled in value, probably because of all the buzz surrounding the potential agreement.
This increase s ignificative coincided with the start of talks on Jan. 18, between Cannamed Brent Zettl, [19659005] CEO and Terry Booth, Aurora's best guy, to see if they could change their tone from their hostile to friendly discussions. "Most hostile offers end up being friendly," says Olasker. "One of the reasons is that the bidder wants to do due diligence and you can not have it if you keep showing yourself hostile."
Neither can you reap the fruits of a course if hostilities can not be resolved. On January 23, the day before the ratification of a friendly agreement by both CEO the stock of Aurora reached a record $ 14.79. The final deal was almost double the initial offer: a $ 1.1 billion equity and cash transaction based on a $ 43 price. At the end of February, the agreement was reached when Aurora received a non-intervention letter from the Competition Bureau. It also meant that the pursuit of $ 725 million would no longer be possible
"It had become clear enough that CanniMed's shareholders wanted the transaction to continue," says Swainson, to explain why the deal was going ahead. agreement became friendly. "But there was also a personal side – the more time we spent together, the more we knew there were really opportunities here and the businesses were much better together – he was one and one to three."
Following the decisions OSC / FCAAS the law firms took note of what the commissions said. Tardif, of BLG, co-authored an article for his firm, "Securities commissions give advice on the new take-over bid regime," which is a typical example.
"In Aurora Cannabis Inc. (Re) 2018 ONSEC 10, [the regulators] recently, and for the first time, provided advice on conducting public tender offers. Hostile under the new regulatory regime, "write the authors." Commissions have ruled that, essentially, the public takeover scheme is an almost complete code. In particular, the Boards considered that: tactical rights plans of shareholders will rarely be allowed; the minimum bid period will rarely be shortened beyond the listed exceptions; and the bidder's ability to buy up to 5 percent of the target's shares in the open market will rarely be canceled.
Elaborating on the poison pill decision, Tardif and his fellow writers noted that, "Commissions have stated that a plan that simply repeats the requirements of the current public offer regime The purchase would serve no purpose and could be confusing for investors, as the new takeover bid regime would rarely protect the additional protections. In other words, the status quo has been vigorously respected.
The Aurora-CanniMed Transaction "was essentially a test for new takeover rules," says Swainson. "It was actually very exciting to be part of that." But if the end result was a welcome and uplifting relief, it was by no means the end of Aurora businesses in the area. cannabis. Several other key transactions were also at stake.
In early February 2018, Aurora announced another transaction, much more modest than the CanniMed deal and much easier to achieve. It acquired a stake of approximately 19.9% in Liquor Stores N.A. for $ 103.5 million. An additional investment could bring Aurora's stake in the liquor stores to 40% (in May, Aurora acquired additional shares, bringing its total to around 25%). The case was definitely friendly, said Balakrishnan. "From a legal point of view, this transaction was completely the opposite of CanniMed.It was just a purchase of shares."
Liquor Stores says Swainson was "natural" to Aurora because of its experience in the liquor retail business and its more than 200 outlets, some of which predict cannabis outflows once the drug is "We wanted to have responsible distributors, particularly in Alberta and British Columbia, who are turning to the private retail model." The board of directors, chaired by Derek Burney, a former Canadian ambbadador, testifies its stability and reputation in the United States and a key political strategist for Prime Minister Brian Mulroney
Liquor Stores, adds Swainson, "is Canada's largest private spirits retailer. They are very good at det garlic and they create a very good customer experience. We know cannabis and what the cannabis consumer wants, which is part of what Aurora brings to this partnership. To affirm its commitment to the retail cannabis industry, Alcools Inc. changed its name in May to Alcanna Inc., a hanger for alcohol and cannabis.
Olasker believes the transaction was a strong move for Aurora. "It's very far-sighted for them to have done that," she says. "It will be an amazing distribution channel for the recreation area, all the pre-existing infrastructure is in place, there is nothing to build in. Nothing personal, just empty shelves at the end of February. In 2018, Aurora made another strategic move by signing an agreement to supply Aurora brand medical marijuana products to Shoppers Drug Mart, Canada's largest pharmacy retailer. sold online because Canadian regulations currently restrict the sale of medical cannabis in retail pharmacies because the agreement is subject to Health Canada 's approval of Shoppers Drug Mart' s application. to be a licensed producer, Aurora says that she can not comment on any aspect of the transaction at this time, except under the terms of the agreement that she will provide to Shoppers Drug Mart ("Shoppers") with medical cannabis products from m arque Aurora.
"I do not think Canadian companies that have similar deals with Shoppers are ready to talk right now," says Swainson. It provides that legislation preventing pharmacies from dispensing medical marijuana will eventually change. Of note, Shoppers' parent company, Loblaw Companies Ltd., applied for a medical marijuana dispensing license in 2016.
But the company Financial Post described as " The most hungry mergers and acquisitions in the Canadian marijuana space, "had not finished its shopping session.In mid-May, Aurora announced an even larger offer than CanniMed.
In this case, Aurora announced its intention to acquire its rival MedReleaf Corp. for an estimated $ 3.2 billion.The largest cannabis transaction in Canadian history The deal, which is expected to close in August, will bring together the second and fourth largest Canadian marijuana companies by market capitalization, which could rival Canopy Growth Corp. in terms of geographic reach, market share, and marketability. 39, product offering and c production apacity., "The Financial Post reported. "The combined market capitalization of the two companies was $ 7.02 billion [on May 14] versus $ 6.45 billion for Canopy … MedReleaf's shareholders will receive 3,575 Aurora shares for each MedReleaf share that's in the market." ;They hold. This involves a price of $ 29.44 and a premium for MedReleaf shareholders of about 34 percent, based on the weighted average of 20 days for the shares of both companies. After completion of the transaction, MedReleaf shareholders will control approximately 39 percent of the merged company. "
Described as a friendly transaction – probably a great relief for Aurora after CanniMed hostilities – it is almost certain to be approved by the shareholders of MedReleaf: The vote will require the approval of two-thirds, but with shareholders controlling 56 percent of the shares that have signed blocking agreements, it appears that agreement will be made.
Details of the way the transaction occurred was not available at the time of writing.Swainson, however, told Lexpert that the acquisition is part of the strategy of the company. Aurora "to build a globally integrated Canadian leader [in the cannabis sector] through organic growth and selective merger M & A .This agreement relates to the business development initiative that we have undertaken to allow us to participate iper to all segments of the business, both at home and abroad.
Aurora and other Canadian cannabis companies continue to maneuver.
In a report on the CBC [ ] Web site titled: "Canadian pot companies are worth putting on the market. billions – but is it a bubble ready to burst? "He added that" there are risks on the horizon. "
The article quotes Chris Damas, publisher of the investment bulletin BCMI ] Cannabis Report as saying:" Everyone compares this to the # 39, dot-com era. You could throw a dart and hit a winner in the cannabis.
If the future of the cannabis industry is still uncertain, a reality seems hard to refute: the legal industry will benefit greatly in the years ahead. This is emphasized by the fact that "84 public companies listed on Canadian stock exchanges are related to the cannabis industry and, collectively, they are worth $ 37 billion", according to Bloomberg data badyzed by cbc.ca [19659002] Lawyers are going to have a lot more work in the cannabis industry, "says Swainson," because what we are doing here is inventing a whole new industry, not just in Canada, but It's very exciting all around the world and, by its very nature, this implies that there will be a ton of new legal work to be done and it will take people who have knowledge and understanding of the sector We believe that there will be a rush of talent and a rush to a law firm to find out what's different and what's special about this industry. There is no model or model for this industry and this applies largely to the legal side.
Coming from a company as aggressive and ambitious as Aurora, this sounds like an invitation to move the pot even more.
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