Tilray Brands (TSX: TLRY) has finally come to a definitive agreement with that of Hexo Corp (TSX: HEXO) as it relates to the purchase of the firms debt and a follow-on commercial agreement. The development follows a proposed strategic alliance initially announced at the start of March.
First and foremost, the transaction will see Tilray acquire the current outstanding senior secured convertible note that has been crushing Hexo for nearly the last year. The remaining US$193 million debt under the note will be purchased by Tilray in full from HT Investments MA, with the debt to be amended to have a conversion price of $0.85 per share.
As part of the strategic alliance, and under the terms of the debt purchase, Hexo is to pay an annual US$18 million to Tilray for advisory services related to “cultivation, operations, and production matters.”
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The debt meanwhile is to bear interest at 5% per annum, with the note to either be paid in full plus interest at the due date, or converted to stock. Current estimates peg potential post-conversion ownership at up to 35%.
Under the purchase agreement, Tilray is to pay 95% of the face value of the notes to HT Investments, with HT Investments having the right to continue to redeem the notes until closing of the transaction. Tilray must be able to acquire at least US$160 in debt under the transaction, a floor which was previously set at US$182 million.
In terms of the strategic alliance, synergies of up to $80 million between the two firms are expected to be found, subject to “certain agreed upon adjustments.” Commercial agreements under the terms of the alliance include that Tilray will be a third party manufacturer for Hexo, and that Hexo will source all cannabis products for international markets (excluding the US) exclusively from Tilray, while the two firms will share costs on a 50/50 basis for the production of beverages, edibles, and pre-rolls.
The closing of the transaction and strategic alliance are subject to regulatory approvals, as well as the condition that Hexo must have at least US$100 million in cash, and a committed equity line of up to C$180 million.
Tilray Brands last traded at $8.07 on the TSX.
Information for this briefing was found via Edgar and Tilray. 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.
