Hexo Corp (TSX: HEXO) (NASDAQ: HEXO) is set for some oncoming dilution. The company last night announced that its shareholders approved two major share issuances, both of which are related to the now approved acquisition of Redecan, a private cannabis operator in Canada.
The dilution events pertain to the acquisition of the licensed producer, as well as the funding obtained for the purchase. In terms of Redecan, the company has seen shareholders agree to the purchase of the firm for $400 million in cash as well as 69.7 million shares of the issuer, with 96.2% of shareholders agreeing to the purchase.
The second major dilution event pertains to the US$360.0 million senior secured convertible note financing conducted by the company back in May, which was conducted to fund a significant portion of the cash required to purchase Redecan. A total of 32.2 million shares are being issued in connection with the financing. The motion saw 95.0% of shareholders agree to the resolution.
The company has indicated that the purchase of Redecan will close “in the coming days” as a result of shareholders voting in favour of the resolutions.
Notably, the original price tag of $925.0 million for the Canadian cannabis producer has been reduced significantly following Hexo seeing its share price take a shellacking. With $525.0 million of the original transaction to be covered via a fixed number of shares, the firms falling share price has effectively reduced the value of those shares to $225.2 million based on yesterdays closing price, resulting in Redecan shareholders effectively seeing the overall price tag fall to $625.2 million – a 32.4% decline.
Hexo Corp last traded at $3.23 on the TSX.
Information for this briefing was found via Sedar and Hexo Corp. 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.
The Grocery Grift: Why Toronto and New York Are About to Light Taxpayer Money on Fire