On-again, off-again merger talks between rival cannabis producers Tilray and Aphria had their genesis in October 2019 when an unidentified investment bank active in the marijuana space pitched a meeting between the company’s respective CEOs, according to a proxy statement filed with regulators.
From there, the blockbuster merger took more than a year to finalize: Talks were placed on hold as the pandemic emerged, and the terms were subject to significant revision.
At the same time, an unidentified “Company A” eyed Aphria as a potential merger partner in the midst of the talks with Tilray.
The unrequited courtship played out from July to October, according to the filing, which reveals numerous previously undisclosed details about the transaction.
In short, the proxy lays out the timeline for how Nanaimo, British Columbia-based Tilray and Leamington, Ontario-based Aphria finally shook hands in December on a marriage to create a giant international marijuana firm with a combined equity value of about 5 billion Canadian dollars ($3.9 billion).
Neither of the companies engaged the investment bank as part of merger talks after the first meeting.
The spurned third-party suitor, Company A, emerged in July and proposed exploratory discussions regarding a potential merger, Aphria CEO Irwin Simon told the company’s board that month.
Company A made its first offer in mid-September.
However, that suitor “was not as attractive as the potential transaction with Tilray since the proposed Company A transaction undervalued Aphria’s contribution to the combined entity,” Aphria concluded at a September board meeting, according to the filing.
At the same meeting, Aphria’s board instructed management to inform Company A that it was uninterested in pursuing a transaction on the terms presented to Aphria.
Nonetheless, the two companies continued to engage in discussions about a potential deal between Sept. 23 and Oct. 23, 2020.
Finally, on Oct. 24, Aphria’s Transaction Advisory Committee met to discuss Company A’s latest offer.
The committee members were concerned “with respect to the share consideration contemplated in the proposal in light of the recent increase in the share price of Company A and the multiples at which it was trading,” according to the filing.
Amid the discussions with Tilray and Company A, Aphria was also deep into talks to acquire U.S. craft brewer SweetWater – a transaction ultimately announced last November.
The first meeting between Tilray and Aphria took place Nov. 22, 2019, in New York.
The participants – Aphria’s Simon, Tilray Chief Corporate Development Officer Andrew Pucher and Tilray board member Michael Auerbach – acknowledged that the companies’ Canadian and international operations “appeared to be highly complementary and that a combination of the businesses could result in significant new business opportunities and cost and revenue synergies,” the filing notes.
Simon and Tilray CEO Brendan Kennedy then met in Orlando, Florida, on Jan. 14, 2020, to discuss the merits of a potential merger.
The two had previously become acquainted at industry conferences.
Exactly one month after the Florida meeting, Tilray offered a first draft of a nonbinding term sheet for a merger.
Tilray envisioned an all-stock deal, with shareholders of Tilray and Aphria owning 56% and 44% of the combined entity, respectively.
According to that draft, the combined company was to take the Tilray company name. Kennedy would serve as CEO and Simon as executive chair.
The board was to be split 50/50, with four directors designated by Tilray and four by Aphria. (The proxy notes that Tilray’s stock had been trading at a higher level than Aphria’s).
Three days later, Aphria pitched a revised ownership split of 55% and 45% for Tilray and Aphria, respectively.
Tilray’s management and advisers briefed the company’s board on Feb. 21 about recent discussions with Aphria, as well as combinations with other potential merger partners or acquisition targets.
Exactly one week later, Aphria’s Simon addressed Tilray’s board to introduce himself and explain “his perspective on the cannabis industry, and his vision for the two companies should they combine,” the filing notes.
The pandemic hit around that time.
At an Aphria board meeting on March 18, Simon said the possible transaction with Tilray would be put on hold “in light of the rapidly changing events related to the COVID-19 global pandemic.”
However, Kennedy and Simon remained in contact via telephone and email.
On-and-off talks continued over the course of the next few months as discussions were paused a number of times.
Both companies considered a number of alternatives, while Aphria received an offer from Company A on Sept. 13.
Aphria’s potential deal with the mystery company ultimately unraveled toward the end of October as the Aphria Transaction Advisory Committee “expressed concerns with respect to the share consideration contemplated in the proposal in light of the recent increase in the share price of” the unidentified business.
Aphria’s management believed acquiring Tilray would tick off a number of boxes, such as:
- Assisting Aphria with its U.S. strategy.
- Providing access to European markets through Tilray’s presence in Portugal.
- Allowing for Cannabis 2.0 product extensions.
- Creating synergies with Aphria’s existing facilities.
Aphria and Tilray exchanged drafts of an agreement between Oct. 9, 2020, and Oct. 12, 2020.
One of the proposed deals, according to the filing, “contemplated among other things an equity ownership split of 60% for Aphria and 40% for Tilray, and an assumed debt-for-equity exchange of US$200 million of Tilray’s convertible notes.”
Aphria again ceased discussions with Tilray, this time in early November, to complete the SweetWater deal.
Talks did not resume until the end of November.
The final deal’s terms were announced Dec. 16, including an equity ownership split of 62% for Aphria and 38% for Tilray with Simon keeping the CEO title – almost the reverse of the first deal pitched by Tilray.
Matt Lamers is Marijuana Business Daily’s international editor, based near Toronto. He can be reached at [email protected].