Aurora Rejects Curaleaf's Hostile Bid and Opens the Door to Other Suitors

The Battle between Aurora Cannabis and Curaleaf is taking a new turn. Aurora’s board of directors officially recommends that its shareholders reject the tender offer launched by Curaleaf and not tender their shares.

In its formal response, the Edmonton-based company stated that the proposal does not accurately reflect the company's value. But Aurora is not simply rejecting the offer: its board has also mandated Fort Capital to explore various strategic options.

An offer consisting of stock and cash

Curaleaf had announced a proposal consisting of a cash payment of 0.75 Canadian dollars, along with 0.3463 Curaleaf subordinate voting shares for each Aurora share.

At the time of the announcement, the U.S. company valued the entire deal at approximately $4 per Aurora share, based on Curaleaf’s stock price as of August 10. However, the final value of the equity component remains dependent on Curaleaf’s stock performance, with a cap of $5 per Aurora share under the terms presented.

Curaleaf defends this structure by highlighting the opportunity for Aurora shareholders to immediately benefit from a premium while maintaining exposure to the growth of a larger, more diversified group.

Aurora, on the other hand, believes that this proposal does not adequately compensate for its assets and growth prospects.

Aurora Highlights Its Cash Position and International Medical Operations

One of the main points of disagreement concerns the Aurora Cannabis's true value.

The company highlights, in particular, its financial position, noting that it has no debt and approximately 149 million Canadian dollars in cash. It also believes that its operations in the International Medical Cannabis, as well as its growth prospects, are not adequately reflected in Curaleaf’s offer.

The analysis presented by Aurora is based, in particular, on comparable transactions and a multiple of 1.8 times revenue for the past 12 months, resulting in a theoretical valuation of approximately 7.03 Canadian dollars per share.

However, this estimate remains an analysis produced by Aurora and is not an established market value. It depends, in particular, on the choice of transactions selected as benchmarks and the assumptions used. Fort Capital nevertheless concluded that Curaleaf’s proposal was insufficient from a financial standpoint, after reviewing comparable companies, previous transactions, and a discounted cash flow analysis.

Curaleaf offers a different perspective. In particular, the group points out that Aurora has sold shares on the open market over the past two quarters at average prices of $3.57 and $3.09. It also points out that Aurora has raised approximately $398 million since September 2020 through stock offerings.

For Curaleaf, Aurora’s current financial strength must therefore also be viewed in light of the dilution that shareholders have experienced over the years.

The Sharing of Synergies at the Heart of the Disagreement

The two groups also disagree on the benefits that a merger could generate. Curaleaf estimates that the merger would generate approximately $40 million in annual synergies. According to the U.S. company, these are annual pre-tax savings once the merger is completed, which would benefit all shareholders as they are generated.

Aurora, however, disputes the manner in which this value creation would be distributed. According to its calculations, more than 90% of the value attributed to synergies would go to Curaleaf’s current shareholders.

This estimate is based on the assumption that the value of the synergies should be divided equally between the two groups of shareholders, an assumption that Curaleaf does not share.

Instead, the U.S. company emphasizes the additional exposure the transaction would provide to Aurora’s investors, particularly to the U.S. medical and recreational markets, the European medical cannabis market, and potential changes in U.S. regulations.

Less Weight in Votes for Aurora Shareholders

According to Aurora, its shareholders would hold approximately 7.7 per cent of the combined company’s share capital, but only 3.2 per cent of the voting rights following the transaction. This difference is due to Curaleaf’s multi-class share structure, which concentrates voting power more heavily in the hands of certain insiders.

Curaleaf does not dispute these figures. The company nevertheless defends its system by emphasizing the importance of the financial stake held by its executives and insiders.

The question put before shareholders therefore goes beyond the value offered by Curaleaf: it is also a matter of determining what influence they wish to retain over the company they would own following a potential acquisition.

A battle that could still take a different turn

The tone adopted by the two companies grew harsher as the discussions progressed. Boris Jordan, Executive Chairman and CEO of Curaleaf, criticizes Aurora's management in particular for refusing to discuss the price and for failing to present a counteroffer.

Curaleaf also defends its ability to service its debt, which Aurora estimates at more than one billion Canadian dollars, including various financial obligations and lease commitments. The U.S. company, for its part, asserts that it generates sufficient operating cash flow and expects its debt level to decrease.

For its part, Aurora is deliberately leaving the door open to another outcome. The mandate given to Fort Capital is intended, in particular, to assess the available alternatives and explore whether other investors might come forward. If you happen to have a few million lying around…