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Jan 29, 2018

Aphria buying Nuuvera for $826M as cannabis consolidation continues

Aphria bets on global marijuana market with Nuuvera takeover

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Another day, another near-billion-dollar deal in Canada’s marijuana industry.

Aphria Inc. (APH.TO) agreed to buy Nuuvera Inc. (NUU.V), a global cannabis company based in Brampton, Ontario, for about $826 million in cash and stock. The offer of about $8.50 a share is 21 per cent higher than Nuuvera’s closing price on Friday.

The deal is part of a growing wave of consolidation in Canada’s marijuana industry as companies seek to gain market share before sales become legal at some point this year. While the combined Canadian market for medical and recreational market is expected to reach about $8 billion in sales by 2021, companies such as Aphria and Nuuvera are looking to grow in markets where there’s even bigger potential.

“This positions us to grow internationally and realigns the potential of these emerging cannabis markets,” Aphria Chief Executive Officer Vic Neufeld said Monday on a conference call.

EMERGING MARKETS

Nuuvera is working with partners in Germany, Israel and Italy and is exploring opportunities in other countries to develop commercial production and distribution of medical cannabis. Combined with Aphria’s agreements in Australia, the merged entity will have a “leading international footprint among Canadian licensed producers,” the companies said Monday.



Nuuvera is one of the finalists in a tender to supply Germany’s market and the company already has an agreement to export marijuana to a German pharmaceutical distributor, CEO Lorne Abony said on the call. Italy’s medical cannabis market is expected to be worth more than $9 billion and Nuuvera is currently one of only seven producers that have secured a license to import into the country, he said.

“I would hope to show you that in one year we have 20 countries under license,” Neufeld said. “That is the vision. This is a very powerful entity that we just created.”

CASH-STOCK DEAL

Nuuvera shareholders will receive $1 in cash plus 0.3546 of an Aphria share, which comes to $8.50 per share based on Aphria’s 10-day volume-weighted average price of $21.15. Aphria plans to issue up to 34 million shares to fund the transaction, which is expected to add to earnings per share in the first full fiscal year after it closes.

The transaction comes less than a week after Aurora Cannabis Inc. agreed to acquire CanniMed Therapeutics Inc. in a $1.23 billion deal that would be the largest yet in the nation’s red-hot industry.

Aphria fell as much as 6.2 per cent and was down 3.9 per cent to $19.37 at 11:52 a.m. in Toronto. The Leamington, Ontario-based company has a market value of $3.1 billion, the third-largest pot producer in Canada by that measure.

Nuuvera surged as much as 21 per cent to $8.44, a record intraday price. Nuuvera just started trading on Jan. 9 in Toronto, following a reverse takeover last year to gain a listing on the TSX Venture Exchange.

The deal is subject to the approval of two-thirds of Nuuvera shareholders. Aphria has secured the votes of holders of about 57 per cent of outstanding Nuuvera shares, including its existing 6.5 per cent stake in the company.

Stoic Advisory Inc. acted as financial adviser to Aphria and Stikeman Elliott LLP provided legal advice. Canaccord Genuity Corp. and law firm Norton Rose Fulbright Canada LLP advised Nuuvera.