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Potential hostile takeover of Aurora Cannabis? (TSX:ACB)



QUESTION: I own shares of Aurora Cannabis (TSX: ACB) (NYSE: ACB). I have heard stories of a potential hostile takeover with ACB management resorting to a poison pill to prevent it. Management has said many times they are "not for sale” but as a public company, they are, in fact, for sale every day. I believe ACB management thinks they can grow their business on their own without a major cash injection from a major partner. This might be true but at the cost of massive dilution which has driven their share price down considerably. I would like your thoughts on a potential investment/takeover. As an investor, I would welcome a partner and a cash infusion because I think it is time to take care of shareholders.


E.G. from the United States


ANSWER: I haven’t heard much about an ACB takeover, hostile or not. I know there were rumours flying weeks ago when the story on the street had Coca Cola interested in them. From my perspective, the real surprise was that Altria (NYSE: MO) did a deal with Cronos (NASDAQ: CRON) while passing over ACB and Aphria (NYSE: APHA) (TSE: APHA).


As someone active in the cannabis industry, I have talked to many different people and over the years, the feedback on ACB Chief Executive Officer, Terry Booth, have been mixed. There is credit given to Booth for what he has accomplished with ACB but more often than not there is always a proviso which is that Booth is hard to get along with. I am told that at ACB, everyone but Booth had better check their ego at the door.


Over the years, my experience has been that people who openly discourage acquisition interest in their company are relegating the best interests of their shareholders behind their own. This is unfortunate because one important part of the end game for an investor in a new and rapidly growing industry such as cannabis is the idea that you will be taken out by a major. If you remove the prospect of being taken over, it will have some negative effect on the overall share valuation. In many of these cases, in my experience, management is trying to protect their power within the company. If ACB is taken over, it seems quite likely to me that Booth will not be running the show.


When I think of the “Big Three” in Canadian cannabis, I think of companies that were spawned by highly promotional entrepreneurs. These are often characters with the skills to start a company out of nothing and promote it into substance but they are not always the best people to run such companies when the businesses are established. With Canopy Growth (NYSE: CGC), Aphria (NYSE: APHA) and Aurora Cannabis (NYSE: ACB), management leadership has evolved as follows in my view.


Clearly, Bruce Linton at Canopy Growth is the person who has shown he is an exceptional leader capable of managing a multibillion dollar market cap company he has been instrumental in creating. Vic Neufeld at Aphria has hit a stumbling point and is on his way out. Terry Booth at Aurora has survived to date.

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