Shares of Aphria Inc. (NYSE: APHA) (TSX: APHA) soared to a 10% gain Friday after Xanthic Biopharma Inc, doing business as Green Growth Brands (USOTC: GGBXF), publicly announced an all-stock bid for the company late Thursday evening.
Green Growth Brands, backed by the wealthy Schottenstein family of Ohio, announced a hostile takeover bid for Aphria, valuing the company at $2.1B, a 46% upside since the company’s closing price on Dec. 24.
According to Market Watch’s Jeremy C. Owens, Aphria has failed to address the claims of insider dealing from a short-seller report. Additionally, Green Growth Brands is commingled with Aphria. The deal structured would protect the same investors at the expense of shareholders.
Recently, short seller Hindenburg Research issued a report calling into question a number of Aphria’s acquisitions, claiming the company was a shell-game linked to insider self-dealing. In response to the allegations, Aphria denied the claims and accused the short-seller of attempting to sway the company’s stock.
Friday, Hindenburg pointed out Green Growth Brands and Aphria share some of the same insiders, including Aphria’s board member Shawn Dym who is also a former board member for Green Growth.
To further Hindenburg’s claim’s, Aphria removed CEO Vic Neufeld –a major target of the short-seller’s theory — from the chairman role. Neufeld is part of the Green Acre Capital advisory board, which took more than $30M from Aphria in the fiscal first quarter, and through one of its funds, invests in Green Growth.
While the company acknowledged the Green Growth investment made by Green Acre, Aphria reported that the independent committee evaluating the takeover has no ties to Green Growth or Green Acres.
Green Growth values Aphria at CA$11 per share or roughly $2.1B. Aphria issued a response saying the bid undervalues the company, however — just like it formed a panel to review the company’s fraud allegations — the company will form a committee to review the offer.
The bid from Green Growth would prop up Aphria’s valuation– Aphria stock has declined more than 30% since Hindenburg published its report on the company — however investors holding stocks have more reasons to be concerned.
Green Growth went public less than two months ago on the Canadian Securities Exchange via reverse merger. An acquisition of Aphria would force the combined-firm to trade on the CSE or on over-the-counter markets rather than the Toronto Stock Exchange and the New York Stock Exchange.
News of Green Growth’s takeover-attempt was called a publicity stunt by Seeking Alpha’s Cornerstone Investments. A maneuver that has benefitted both companies, with Aphria jumping nearly 12.59% to $6.26 on Friday, and Green Growth climbing 3.14% to $3.76.
Bluntly, the proposition doesn’t make an ounce of sense. Green Growth posted a modest revenue of approximately $1M with losses nearing half of that.
Green Growth’s Chief Executive Peter Horvath argues that his company’s management experience combined with Aphria’s talent for cannabis cultivation would give the newly developed entity the leverage to attract global attention.
While the takeover could potentially replace management, giving Aphria a new shot at earning investor trust, the deal would be at the shareholder’s expense and could be the same type of insider trading as their previous acquisition deals.