A syndicate consisting of influential stakeholders, including the second-largest shareholder of Fire & Flower (TSX: FAF), has expressed opposition to a proposed agreement between the cannabis retailer and its largest shareholder, an affiliate of the renowned convenience store operator Alimentation Couche-Tard Inc. (TSX: ATD.B).
Matt Lamers at MJBizDaily has reported that Shawn Dym, a major shareholder and co-founder of Green Acre Capital Fund II (Canada), filed an affidavit with the Ontario Superior Court of Justice, denouncing the proposed sale and investment solicitation process (SISP) as “truncated” and likening it to a “fire sale.”
“I believe that (Fire & Flower’s) underlying business is strong and that a fire sale at this time is not necessary and not in the best interests of all stakeholders,” Dym said.
The opposing syndicate, which includes real estate firm Osmington, investment firm Sharno Group, and Shalcor Management, all based in Toronto, firmly objects to the Couche-Tard’s SISP. Collectively, they argue that the proposed deal fails to prioritize the best interests of Fire & Flower or its investors, consequently undermining the potential to maximize stakeholder value.
Fire & Flower recently sought bankruptcy protection, marking a significant development in the industry.
On Wednesday, the cannabis retailer announced that they have received approval from the Ontario Superior Court of Justice “the implementation of a sale and investment solicitation process” and “a stalking-horse agreement” between the firm and a Couche-Tard affiliate.
“The SISP is intended to solicit interest in, and opportunities for: (i) an investment in, restructuring, recapitalization, refinancing or other form of reorganization of the Fire & Flower Group or their business; and/or (ii) one or more sales or partial sales of all, substantially all, or certain portions of the property or the business of the Fire & Flower Group,” the firm said in a statement.
In a move to present an alternative solution, Green Acre pitched a new debtor-in-possession (DIP) facility on June 19, replacing the existing facility offered by Couche-Tard’s affiliate. Under the proposed DIP agreement financed by the syndicate of lenders, Fire & Flower would receive up to $9.8 million, mirroring the amount offered by the Couche-Tard affiliate.
Notably, the new DIP facility offers more favorable terms, including a lower interest rate of 10% compared to 12% and a reduced exit fee of $300,000 instead of $400,000.
W. Brett Wilson, a prominent figure in the investment banking sector known for his role on the CBC TV business show “Dragons’ Den,” is among the leaders spearheading Green Acre’s efforts. In his affidavit, Dym asserts that the proposed SISP and stalking-horse agreement are part of Couche-Tard’s “loan to own” strategy, ultimately positioning them to become the sole owner of Fire & Flower within a month, without providing any cash consideration and eradicating subordinate debt and equity interests.
“In short, I believe that, if the applicants’ proposed SISP and stalking horse agreement are approved, Couche Tard is likely to become the sole owner of (Fire & Flower) in about a month from now for no cash consideration, with all subordinate debt and equity interests wiped out,” Dym wrote.
Recent court documents unveiled an intriguing revelation that just before filing for bankruptcy protection, Fire & Flower received a letter of intent from Pop’s Cannabis Co., a rival Canadian marijuana retailer, expressing interest in purchasing up to 32 stores for a reported $20 million. However, Dym notes that Fire & Flower did not engage meaningfully with Pop’s Cannabis, despite his urging to explore the offer further.
The court filings further shed light on Fire & Flower’s decline in market capitalization, which peaked at approximately half a billion dollars in February 2021 when its shares traded at around $15. On the day of the company’s Companies’ Creditors Arrangement Act filing, its shares plummeted to approximately $0.29, resulting in a market capitalization of around $13 million.
Information for this briefing was found via Sedar, MJBizDaily, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
