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Wednesday, June 29, 2022

Aphria Inc. (APHA) And Tilray, Inc. (TLRY) Said To Be Discussing A Merger

Aphria Inc. (NASDAQ: APHA) and Tilray, Inc. (NASDAQ: TLRY) are in talks to merge, with an announcement possible as early as this week, sources said. It is anticipated that the merged business will keep the name Tilray and designate Aphria Chief Executive Officer Irwin Simon as its CEO, the sources added. Aphria will likely gain a majority of the board seats, and its shareholders would own 60% of the combined company, according to a source with direct knowledge of the matter. Brendan Kennedy is expected to hold a seat on Tilray’s board of directors, but he is doubtful to retain an executive position, the source added.

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As of Tuesday, talks were continuing between the two companies, and there is no assurance that an agreement could be reached. 

As part of a plan to improve its position in that region, the combined Aphria-Tilray firm would likely shift its headquarters to the United States, the sources said. Cannabis sales in the U.S. have risen significantly in the past year, at the height of the COVID-19 pandemic. Tilray, Inc. (NASDAQ: TLRY) is based in Nanaimo, B.C., while Aphria Inc. (NASDAQ: APHA) is based in Leamington, Ont.

An estimated $100 million in annualized cost savings could be achieved by combining the two companies. At the same time, Aphria would produce the largest portion of the new entity’s Canadian cannabis inventory in its 1.3 million-square-foot greenhouse in Leamington, Ont., the sources said. One of the sources who have indirect knowledge of Tilray said that the production facilities in Nanaimo, British Columbia, and London, Ontario are likely to be shut down.

The deal between Tilray and Aphria would create the largest cannabis company in Canada and would be a major player in the global pot sector if it is finalized. The sources said that Tilray’s international operations, including a world-class production facility in Portugal, were a jewel of the deal. As well as Australia and Germany, Tilray also has substantial operations in the United Kingdom; meanwhile, Aphria has a German pharmaceutical distribution business.

Based on the two companies’ most recent quarterly results and the revenue from Sweetwater Brewing Co., which Aphria acquired last month, the combined company would have a leading 19 percent share of the Canadian recreational cannabis market and income north of $930 million.

Aphria Inc. (NASDAQ: APHA) has been said to be eyeing a consolidation role in Canada’s crowded cannabis sector for the second time in recent months. In July, the BNN Bloomberg reported that the Leamington, Ont.-based pot company was in serious talks with Aurora Cannabis Inc. Still, that contract talks broke down over differences over board composition and compensation.

Aurora and Tilray, Inc. (NASDAQ: TLRY) differ in that Tilray generates half of its revenue from its Manitoba Health hemp food business. Aphria might find that appealing, given Simon’s prior experience running organic health food operator Hain Celestial Group Inc., and it could bring stable revenue to its other non-cannabis subsidiaries, such as the German healthcare distribution company CC Pharma and Sweetwater Brewing.

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