Canopy Growth Corp (NYSE: CGC) recently announced that they were acquiring Acreage Holdings (TSXV: ACRG.U) in a deal worth around $3.4 billion. The latest in a series of multi-billion-dollar marijuana mergers, it appears that one activist hedge fund is trying to do its best to stop the deal from going through.
In a public letter to Acreage’s board of directors on Monday, Marcato Capital Management went on to say that it would vote with its 2.7 percent stake in the company against the merger, calling it a “value destructive” transaction and urged other Acreage shareholders to do the same.
Ever since Canopy first announced that they had purchased the right to acquire Acreage back in April, shares of ACRG.U have reacted poorly, declining over 17 percent since the news broke.
Marcato argued that since the deal was announced, Canopy’s shares have increased around 15 percent, representing a market cap increase of $3.5 billion. Their argument is that the market thinks the deal is worth twice what Canopy is offering and that Acreage is sorely undervalued.
“We believe Acreage’s strategic value, as one of the few multi-state operators of scale in the U.S., with leading positions in the most valuable markets merits a significant premium to any stand-alone cash-flow derived valuation,” said Mick McGuire, founder of Marcato Capital, in the letter. “Furthermore, we believe enterprise values of cannabis companies will skyrocket upon the relaxation of current Federal restrictions.” Marcato Capital in recent years has also been known for pursuing high-profile activist campaigns with companies like Sotheby’s (NYSE: BID), Bank of New York Mellon (NYSE: BK), and Deckers Outdoors (NYSE: DECK).
Calling other Acreage stockholders to reject the deal, Marcato hopes that either Acreage will remain independent going forward, or at least go through a sales process in which Canopy Growth would bid against “every other major spirits, beer, beverage, tobacco, cannabis and consumer” company in the market for a fair, competitive valuation.
Overall, it seems unlikely that Marcato will be successful in halting this deal between Canopy Growth. While shares of the Canadian cannabis giant have fallen over the past week, dipping a further 3.2 percent as of writing, Canopy’s stock jumped substantially when the Acreage acquisition was first announced. At its highest point, Canopy increased almost by 30 percent over the course of a couple of weeks.
Shares of Acreage also declined today, dipping 3.7 percent down to $20, well below the $31 per share that Canopy is offering. Sell side analysts following Acreage before the deal offer put their target price for the company between $30-35 per share for the most part.
Canopy Growth Company Profile
Canopy Growth Corp through its subsidiaries is the licensed producer of medical marijuana in Canada. The company grows, produces and sells medical marijuana. It operates diverse brands and variety supported by over half million square feet of indoor and greenhouse marijuana production.
It sells medical marijuana under various brand names including Tweed, Bedrocan, and Mettrum. A majority of the revenue is derived from the sale of medical marijuana by Tweed and Bedrocan in Canada. – Warrior Trading News