Hexo Corp (TSX: HEXO) (NASDAQ: HEXO) has evidently entered into a definitive agreement to acquire that of Zenabis Global (TSX: ZENA) in an all share transaction valued at $235 million. The arrangement is to be conducted via a court-approved plan of arrangement.
The terms of the arrangement outline that Zenabis shareholders will receive 0.01772 of a share of Hexo for every share held of Zenabis Global. The terms amount to a 19% premium that is being paid to Zenabis shareholders based on the twenty day volume weighted average price of Zenabis.
The transaction has reportedly been approved unanimously by the boards of directors of both firms.
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The justification for the transaction is based on the combined recreational cannabis sales of the two firms placing the resulting entity in a top three position within Canada, along with a “foothold” in Europe. Synergies – aka cost cutting – of $20 million are anticipated to occur within the first year of the transaction closing via cost of goods reductions, increased utilization, and SG&A cuts.
An arrangement termination fee of $6.0 million has been put in place in the event that Zenabis elects to go with a superior offer to that of Hexo’s. The transaction is dependent on a number of conditions, including Zenabis’ sale of Bevo Agro.
The resulting issuer is expected to consist of 87.43% ownership by Hexo, while Zenabis would own 12.57% of the resulting issuer. Accordingly, one member of Zenabis’ executive team is to be appointed to Hexo’s board of directors post-closing.
In the interim between closing, Hexo has invested $19.5 million in Zenabis in the form of an unsecured convertible debenture, the funds from which are associated with the prior cash advance in December, as well as funds to cover the settlement of arbitration proceedings with an unnamed customer. The debt bears interest at 8%, and is due February 15, 2023.
Hexo Corp last traded at $9.95 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.
