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Canopy Growth Corporation ("Canopy Growth") (TSX:WEED) (NYSE:CGC) and Hiku Brands Company Ltd. ("Hiku") (CSE:HIKU) (together, the "Companies") are pleased to announce that they have entered into a definitive arrangement agreement (the "Agreement") pursuant to which Canopy Growth will acquire all of the issued and outstanding common shares of Hiku (the "Transaction").
Under the terms of the Agreement, Hiku shareholders will receive 0.046 of a Canopy Growth common share (each whole share, a "Canopy Share") in exchange for each common share of Hiku (each, a "Hiku Share"), representing the equivalent of C$1.91 per Hiku Share and a premium of 33% based on the 20-day volume weighted average prices of the Canopy Shares and the Hiku Shares as of July 9, 2018, and a premium of approximately 21% based on the closing prices of the Canopy Shares on the Toronto Stock Exchange ("TSX") and the Hiku Shares on the Canadian Stock Exchange ("CSE") on July 9, 2018.
"Hiku equals brands. Canopy is built on brands. So we combined them," said Bruce Linton, Chairman & CEO, Canopy Growth, in haiku.
Alan Gertner, Chief Executive Officer of Hiku said: "This Transaction represents an incredible step in the Hiku journey that both realizes immediate benefits for our shareholders and at the same time provides an unparalleled opportunity to join forces with a preeminent global cannabis player. Ultimately, together we will continue to build one of the world's most engaging and successful cannabis retail and brand business. Canopy is a truly special cannabis company that is well positioned to lead both in Canada and around the world."
- Secures an Immediate Attractive Premium for Hiku Shareholders: The Transaction provides Hiku shareholders with a premium of 33% based on the 20-day volume weighted average prices of the Canopy Shares and the Hiku Shares as of July 9, 2018, and a premium of 21% based on the closing prices of the Canopy Shares on the TSX and the Hiku Shares on the CSE on July 9, 2018.
- Strengthening a Leading Vertically Integrated Global Cannabis Company: Canopy Growth is a leading diversified global cannabis company and market leader with distinct brands and an award-winning product portfolio that spans federally legal markets around the globe in both medical and recreational segments. This transaction strengthens the diversity and range of brands in the portfolio and improves access to multiple demographic segments.
- Integration of Retail Operations: The Transaction provides Canopy Growth and Hiku with an integration and expansion opportunity with respect to retail stores in provinces where direct consumer sales will be permitted pursuant to the Cannabis Act, including a pipeline of growth opportunities.
- Complimentary Portfolio of Brands: The Transaction provides Canopy Growth and Hiku with the opportunity to leverage a combined portfolio of established brands through their respective retail stores across the country and thereby generate incremental opportunities with distributors.
- Alignment with Strong Management Team: Hiku's strong management team brings best-in-class retail, design and marketing experience, which are well aligned with and further supplements Canopy's existing strategy and operations.
- Strong Access to and Immediate Availability of Capital: Canopy Growth recently closed the issuance of convertible notes amounting to $600 million in gross proceeds. This capital and liquidity will support both Companies continued expansion efforts
- Continued Participation in Expanded Platform for Future Growth: Hiku shareholders, through their ownership of Canopy Shares, will have the opportunity to participate in the growth of Canopy Growth and will benefit from the enhanced growth prospects of the combined company. The Transaction will provide substantial infrastructure and operational support to accelerate Hiku's growth strategy, future product development and innovation, together with Canopy Growth and its global partners.
- Enhanced Liquidity and Capital Markets Profile: Canopy Growth is listed on both the New York Stock Exchange ("NYSE") and the TSX. Canopy Shares are highly liquid with an average daily trading volume of approximately 5.4 million shares, representing approximately C$197 million on a daily basis over the last three months.
Additional Transaction Details
The Transaction will be carried out by way of a court-approved plan of arrangement under the Business Corporations Act (British Columbia) and will require the approval of at least 66 2/3% of the votes cast by the shareholders of Hiku at a special meeting expected to take place in August 2018 (the "Meeting"). In addition to Hiku shareholder approval, the Transaction is subject to applicable regulatory, court and stock exchange approvals and certain other closing conditions customary in transactions of this nature. No approval of Canopy Growth shareholders is required in connection with the Transaction.
The board of directors of Hiku (the "Hiku Board") has unanimously approved the Agreement and recommends that shareholders of Hiku vote IN FAVOUR of the Transaction. A management information circular will be mailed to shareholders in connection with the Meeting. BMO Capital Markets and INFOR Financial Inc. have each provided an opinion to the Hiku Board to the effect that, based upon and subject to the assumptions, limitations, and qualifications in such opinions, the consideration to be received pursuant to the Agreement is fair, from a financial point of view, to Hiku shareholders.
Each of the directors and senior officers of Hiku, who hold in aggregate 28.5% of the issued and outstanding Hiku Shares, have entered into voting support agreements with respect to the Transaction pursuant to which, among other things, they have agreed to vote in favour of the Transaction at the Meeting.
The board of directors of Canopy Growth (the "Canopy Board") has unanimously approved the Agreement. Greenhill & Co. Canada Ltd. ("Greenhill") has provided an opinion to the Canopy Board that, subject to the assumptions, limitations and qualifications set out in such opinion, the exchange ratio provided for in the Agreement is fair, from a financial point of view, to Canopy Growth.
The Agreement includes certain non-solicitation covenants subject to the right of Hiku to accept a superior proposal in certain circumstances, with Canopy Growth having a five-business day right to match any such superior proposal received by Hiku. The Agreement also provides for the payment of a C$15 million termination fee, if the Transaction is terminated in certain specified circumstances.
On July 10, 2018, the Hiku Board unanimously determined, after receiving the advice of its financial and legal advisors, that the Transaction constitutes a "Superior Proposal" pursuant to the arrangement agreement between Hiku and WeedMD Inc. ("WeedMD") originally announced on April 19, 2018 (the "WeedMD Agreement"). The Hiku Board provided notice of that determination to WeedMD. WeedMD has waived its "right to match" the proposal by Canopy Growth. Accordingly, the WeedMD Agreement has been terminated and Hiku has paid a termination fee of C$10 million to WeedMD pursuant the terms of the WeedMD Agreement. Canopy has advanced Hiku the funds to pay the termination fee pursuant to a promissory note.
Advisors and Counsel
Cassels Brock & Blackwell LLP is acting as legal counsel to Canopy Growth. XIB Financial and Greenhill acted as financial advisors to Canopy Growth and Greenhill has provided a fairness opinion to the Canopy Board.
Wildeboer Dellelce LLP is acting as legal counsel to Hiku. BMO Capital Markets is acting as financial advisor to Hiku and BMO Capital Markets and INFOR Financial Inc. have each provided a fairness opinion to the Hiku Board.