Where does one start? At the beginning is typically the right place …
November 14th
Aurora makes proposal to acquire CMED
November 15th
CMED tells it shareholders to wait
November 17th
CanniMed agrees to buy Newstrike
November 24th
ACB formally launches hostile takeover
bid for CMED
November 30th
CanniMed enacts poison pill
December 5th
TSX Venture defers Consideration
The formal hostile takeover bid for CMED included a statement that ACB will walk away from their offer if CMED and HIP shareholders vote to proceed with CMED’s acquisition of HIP.
We have been advising our readers since the spring of 2016 in the USA edition that the consolidation curve cannot be avoided and particularly in Canada. We have commented on the M&A activity since that and how activity was increasing. You likely have noticed how others have subsquently repeated our observation. The CBC seems to have noticed too.
This case study will not fully explore all three deals because of the length of doing so. We know from our indsutry leading analysis of the Canopy Growth and Mettrum M&A that the acquiree’s share price effectively acts as a warrant at a fixed convesion price. Let’s look at each deal independently.
Each HIP share will convert into 0.033 CMED shares assuming that the deal is approved. At time of writing their share prices were $0.54 and $20.40. As a percentage, HIP is trading at 2.6% of the price of a CMED share representing a 27% uptick potential. For example, if a shareholder owned 46,300 shares of HIP this would convert to 1,528 shares of CMED when the deal closes.
If this same person sold HIP to buy CMED they would make $25,000 from the proceeds and could buy 1,225 shares of CMED. Notice the difference of 303 shares despite each starting with approximately a $25,000 equivalency.
What if instead the person owned 1,200 shares of CMED? They could sell them for $24,480 and buy 45,333 shares of HIP which would convert back to 1,496 shares of CMED (296 more than they started with). In other words, so long as HIP is trading less than 3.3% of the share price of CMED, the “move” is to buy HIP even if that means selling CMED to do so.
The sale of HIP however could attract capital gains etc. If all things were equal and the same scenario as WEED-MT then it would indeed be a near risk free scenario. Even more so for CMED shareholders who could sell their shares and buy HIP and then convert back and end up with more CMED shares.
As a shareholder of HIP the CMED offer appears attractive as it is at a premium.
BUT ALL THINGS
ARE NOT EQUAL.
LGC CAPITAL LTD.
TSXV:LG
As At October 20, 2017
Shares Outstanding: 269,861,810
Share Price: $0.15 Market Cap: $41,828,581
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