Aurora Cannabis Rejects Revised Curaleaf Bid, Courts Rival Offers

Aurora's board turns down a sweetened offer

Aurora Cannabis has rejected Curaleaf Holdings' hostile takeover bid a second time, and it is now openly inviting offers from other buyers. On October 14, the Canadian medical cannabis producer said its board had unanimously recommended that shareholders reject Curaleaf's revised offer. The board acted on the advice of a special committee of independent directors and had an updated opinion from its financial advisor finding the new terms inadequate.45 Aurora also told shareholders that the special committee is looking at alternatives. These include a deal with one or more third parties or staying independent and continuing its current strategy.4

The story has moved past a single rejection. For two months, Aurora was defending against one bidder. Now it is running something that looks like an auction. The company said its financial advisor approached several possible buyers and that it has signed confidentiality and standstill agreements with multiple parties that are reviewing company information.149 Aurora has not named those parties or said whether any of them has made a formal offer.14

CEO Miguel Martin laid out Aurora's case. He said the company has no debt and a strong cash position, and that Curaleaf's revised bid still asks shareholders to give up those strengths and their future upside at a discount.5 He added that the offer stays open until December 4, so shareholders gain nothing by tendering now and could hurt the chances of a better outcome if they do.5

How the deal has changed since August

Curaleaf first announced in August that it planned to bid. That offer was worth about $272 million and valued Aurora at roughly $4 per share.2 It offered 0.3463 Curaleaf shares plus $0.75 in cash for each Aurora share.1 Aurora's board rejected it in a directors' circular dated September 1. The board called the bid opportunistic and said that if the deal closed, Aurora shareholders would hold about 7.7% of the combined company's equity but only 3.2% of the votes.17

On October 5, Curaleaf raised its offer by 25%. The new terms are 0.4013 Curaleaf subordinate voting shares plus $1 in cash per Aurora share, for an implied value of $5.110 Curaleaf also raised the cap, the most an Aurora shareholder could receive per share, from $5 to $6. It agreed to provide the pro forma financial statements Aurora had asked for and extended the deadline to December 4.1 Curaleaf says the new price is an 86% premium to Aurora's unaffected price, which it measures as the 30-day volume-weighted average of $2.75 as of August 10, the day before it announced its plan.1

Coverage of the numbers mostly agrees, with some small differences. One Australian trade outlet described the new offer as a maximum of US$6, "up from the US$5 initially tabled."18 That mixes up the old cap with the new implied price. The other reports say the implied value went from about $4 to $5 and the ceiling from $5 to $6.114 Reports also differ on Curaleaf's debt. Aurora's September circular put it at more than $1 billion.17 MJBizDaily described it as nearly $1 billion and noted that Aurora has no debt apart from lease liabilities.2

Curaleaf is promoting the size of the combined company. It projects operations in 17 countries, more than $1.5 billion in trailing 12-month revenue, close to $350 million in adjusted EBITDA, at least $40 million a year in cost savings and a pro forma market value above $3 billion.110 That is why a bid valued in the low hundreds of millions has been described in billion-dollar terms. The billion-dollar figures describe the merged company, not what Curaleaf would pay for Aurora.

Why Aurora says the price is still too low

Aurora's objections are less about the headline price than about how the offer is built. Its main complaint is that much of the cash portion would effectively be paid out of Aurora's own balance sheet, so Curaleaf would gain control without paying fairly for it.5 Aurora reported about $149 million in cash and no debt as of June 30.17 Darren Gleeman of MBO Ventures made a similar point in a September column. He noted that Aurora held more cash and short-term investments than the roughly $51 million in cash Curaleaf first proposed to pay.1

Aurora's second objection is that most of the increase came in Curaleaf stock, which Aurora calls overvalued. That leaves Aurora shareholders exposed if Curaleaf's share price falls.5 Gleeman also argued that the original cap limited shareholders' gains while leaving them fully exposed to losses. He suggested Curaleaf might need to pay more cash, offer more upside, or both.1 Curaleaf did both, but only in part. The cash portion rose from $0.75 to $1, and the cap moved up by a dollar.1 The board's reply suggests those changes did not address the underlying problem.

Aurora also says Curaleaf has not backed up its savings estimates. It argues that even if the savings happen, nearly all of the benefit would go to Curaleaf's existing shareholders.5 In September, the company raised other risks. Curaleaf shares do not trade on a major U.S. exchange, which limits liquidity, and the combined company would face tax and regulatory uncertainty.17

Curaleaf's response and the Organigram report

Curaleaf's answer is that it has met every demand, disclosed more than regulators required and raised its offer by 25%. CEO Boris Jordan called Aurora's latest response "grossly inadequate and negligent to its shareholders."9 He said Aurora had started a process with multiple parties while deliberately excluding Curaleaf and refusing it due diligence access.2 Curaleaf has also said that the shareholders it has met support the strategic case for the deal.1

The comparison with Organigram has angered Curaleaf most. In early October, industry newsletters reported that Organigram, a Canadian licensed producer partly owned by British American Tobacco, had held talks with Aurora about a possible deal.9 Reports differ on who broke the story. MJBizDaily and Cannabis Equipment News credit Cultivated, while StratCann cites Business of Cannabis.69 Neither company confirmed the talks.6 Curaleaf said it was outraged. It called itself the world's largest cannabis company, with a market value of $2.6 billion, and said it was being denied normal due diligence while a Canadian company worth about $200 million appeared to be welcome.8

Curaleaf's complaint has a reasonable side. Bidders usually expect equal access to information. But the Organigram report does not prove much. No offer from Organigram has been made public, and Aurora's statements describe several parties, not one preferred partner.14 What the report does show is that the special committee has been testing the market more seriously than Aurora's earlier public statements suggested. When StratCann asked in August whether it had received other approaches, Aurora said it would not comment unless disclosure became necessary.9

The two companies are also fighting outside the bid itself. Curaleaf asked the Alberta Securities Commission to stop Aurora from issuing shares through its at-the-market program while the bid is open. Aurora called the request a distraction.10

Why Aurora is worth fighting for

Aurora is a small company, so the interest in it comes down to what it owns. Observers think Curaleaf mainly wants Aurora's facilities certified under EU good manufacturing practice (EU-GMP) rules, which would support Curaleaf's push into Europe.2 Aurora recently said it had finished a major expansion of a European EU-GMP facility that will more than double its expected annual flower output.13 In August, it bought two UK medical cannabis companies to expand distribution.17 It also owns MedReleaf Australia.18 For a buyer that wants to grow in international medical cannabis markets, it would take years to build that kind of approved, export-ready capacity from scratch.

Aurora has called itself a global, high-margin medical cannabis company.17 In August, TD Securities said the original bid undervalued Aurora's medical leadership, balance sheet flexibility and long-term growth.10 Investors have generally sided with the view that Aurora is worth more. The stock rose about 20% when Curaleaf first disclosed its plans and about 6.5% more when the formal bid launched.17

What happens next

The key date is December 4. Curaleaf's offer expires then, and Aurora shareholders will decide whether to tender.214 Aurora's board has said it will make another recommendation once it has evaluated the alternatives.14 It has also warned that the review may not produce a deal.18

My reading is that Aurora's board has gained the upper hand on timing, but not necessarily on price. Waiting costs shareholders nothing while the bid remains open. Signing standstill agreements with several parties also indicates the board expects real interest from other buyers. Even so, Curaleaf's 86% premium is real, and no rival bid is on the table yet. If the special committee cannot show a better deal before December, many shareholders will likely see Curaleaf's offer as the best one available. Aurora has said shareholders have a choice. Before December 4, it needs to show them an alternative, or Curaleaf will have the only firm offer.