Rivers to sell its interests in TerrAscend,
Tweed Tree Lot, and Vert Mirabel to Canopy Growth at implied total
transaction value of approximately $297
million, representing an aggregate ROIC of approximately
5.6x and IRR of approximately 101%
Rivers to receive $115
million in cash and 3,750,000 common shares of Canopy Growth
and cancel all 36,468,318 Multiple Voting Shares and the
15,223,938 Subordinate Voting Shares of Rivers held by Canopy
Growth
With its significantly bolstered balance sheet
following closing, Rivers will explore new investment, acquisition
and/or merger opportunities
Transaction supported by JW Asset Management,
a leading strategic investor in the U.S. cannabis market, and
Rivers' largest shareholder following completion of the
Transaction
Transaction will eliminate the Company's dual
class share structure, improving strategic flexibility
TORONTO, Dec. 21, 2020 /CNW/ - Canopy Rivers Inc.
("Rivers" or the "Company") (TSX: RIV) (OTC: CNPOF)
today announced that it has entered into a definitive agreement
(the "Arrangement Agreement") with Canopy Growth
Corporation ("Canopy Growth") (TSX: WEED) (NASDAQ: CGC)
pursuant to which, among other things, Rivers will transfer three
portfolio assets to Canopy Growth in exchange for $115 million in cash and 3,750,000 common shares
of Canopy Growth and the cancellation of all 36,468,318 Multiple
Voting Shares ("MVS") and the 15,223,938 Subordinate Voting
Shares ("SVS") of Rivers held by Canopy Growth
(collectively, the "Transaction"). On closing, the
Transaction will result in Rivers becoming a widely-held company
and will unlock substantial value, providing Rivers with
significant additional cash resources and allowing it to pursue
opportunities in the global cannabis market, including the United States ("U.S."). The Company
believes that its significant cash position and single class share
structure will make it an attractive transaction partner for
cannabis operators, including those in the U.S., looking for access
to capital and a path to liquidity. The Transaction will proceed by
way of a court-approved plan of arrangement under the Business
Corporations Act (Ontario).
"This is a transformative transaction for our Company that we
believe provides substantial value to our shareholders through an
enhanced cash position and strategic flexibility, and the collapse
of our dual class share structure," said Narbe Alexandrian,
President and CEO, Rivers. "Following the closing of the
Transaction, we intend to shift our focus to pursuing other
opportunities in the global cannabis market, where we believe that
our new strategic focus and substantial balance sheet will allow us
to successfully execute our revamped strategic plan."
"As a long-time shareholder of Rivers, I am pleased to support
this transaction", said Jason Wild,
chairman of JW Asset Management which, on closing, will own 23.9%
of the common equity of the Company. "As an active investor in the
U.S. cannabis market, JW Asset Management recognizes the
generational opportunity for value creation in the world's largest
and most attractive cannabis market. With a significant infusion of
cash and liquid securities, and a new strategic focus, we believe
that Rivers will be well-positioned to further explore and
potentially capitalize on this vast opportunity."
"The financial and strategic merits of the Transaction to the
Company and our minority shareholders are clear," said Joseph Mimran, Chair of the special committee of
independent directors (the "Special Committee") that Rivers'
board of directors (the "Board") established in connection
with the Transaction. "On behalf of the Board, we look forward to
writing the next chapter in Rivers' history."
Transaction Overview
The Transaction will include the following steps:
- Rivers will terminate the royalty agreement between its
wholly-owned subsidiary Canopy Rivers Corporation ("CRC")
and The Tweed Tree Lot Inc., and will sell the following assets,
all owned by CRC, to Canopy Growth (collectively, the
"Transferred Assets"):
-
- 19,445,285 exchangeable shares in the capital of TerrAscend
Corp. ("TerrAscend");
- a loan in the principal amount of approximately $13.2 million owed by TerrAscend Canada Inc.
("TerrAscend Canada") to CRC;
- warrants to purchase 2,225,714 common shares in the capital of
TerrAscend at an exercise price of $5.95 per share, exercisable upon the federal
legalization of cannabis in the U.S.;
- warrants to purchase 333,723 common shares in the capital of
TerrAscend at an exercise price of $6.49 per share, exercisable upon the federal
legalization of cannabis in the U.S.;
- its 26% common share interest in Les Serres Vert Cannabis Inc.
("Vert Mirabel"), subject
to certain rights of first refusal; and
- its 15,000,000 Class A preference shares in the capital of Vert
Mirabel.
- The consideration to be received by Rivers in connection with
the Transaction will be satisfied by:
-
- payment by Canopy Growth of $115
million in cash;
- issuance of 3,750,000 common shares of Canopy Growth, which
will be freely tradeable on the TSX and Nasdaq as of the closing of
the Transaction; and
- cancellation of all of the 36,468,318 MVS and 15,223,938 SVS
held by Canopy Growth.
- Rivers and Canopy Growth will also terminate the agreements
that govern their relationship, including the Investor Rights
Agreement, Memorandum of Understanding and Trademark License
Agreement.
- Rivers and CRC will also change their corporate names to
reflect the new direction of the Company.
Concurrent with completion of the Transaction, Canopy Growth's
nominees on the Company's board of directors will resign from the
Board. The Company intends to replace the departing directors with
new directors having skills and experience that complement those of
the remaining directors, taking into account the Company's new
strategy and focus.
Financial Summary
Under the terms of the Arrangement Agreement, Rivers will be
exiting the Transferred Assets at a substantial premium to the
amounts originally invested by the Company. The aggregate
Transaction value represents a total return on invested capital
("ROIC") of 5.6x and a combined internal rate of return
("IRR") of approximately 101%.1
The Transaction is also expected to significantly strengthen
Rivers' balance sheet and liquidity position. The Company estimates
that cash proceeds (not including the value of the Canopy Growth
shares issuable to Rivers) from the disposition of the Transferred
Assets, net of the associated tax liability and Transaction costs,
will be approximately $87.2
million.2 Taking into account the Company's
current adjusted cash balance of $31.0
million,3 this represents a pro forma cash
balance of $118.2 million. Based on
the closing price of the Canopy Growth common shares on
December 18, 2020, the 3,750,000
shares were worth approximately $124.8
million. On a pro forma basis, cash and liquid securities
per share (including the implied value of the Canopy Growth common
shares as at December 18, 2020) would
be $1.74 assuming completion of the
Transaction.4
Strategic and Economic Benefits
Rivers believes the Transaction will propel the Company to its
next phase of growth. The Company believes the Transaction will
provide the following benefits, among others:
Strategic Flexibility: Following completion of the
Transaction, the Company will have the freedom to consider and
execute on new opportunities, including potentially in the U.S.,
the world's largest and most attractive cannabis market. As such
opportunities may be inconsistent with the policies of the Toronto
Stock Exchange ("TSX"), to the extent the Company intends to
pursue such opportunities, the Company may de-list from the TSX
following completion of the Transaction and list its securities on
a stock exchange that permits such activities. In addition, should
the Company pursue such opportunities, the Company will address the
impact of any such activities on existing business relationships,
including with portfolio companies, suppliers, lenders and other
third parties.
Financial Strength: Upon closing of the Transaction, the
Company is expected to have a balance sheet that compares
favourably with many peers in the cannabis industry, with
approximately $243 million in cash
and liquid securities on a pro forma basis.5 This will
improve Rivers' liquidity in the near term, and is expected to
position the Company as an attractive investment, acquisition
and/or merger partner.
Favourable Transaction Economics:
(i)
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Monetization of
Transferred Assets: The Transaction allows the Company to
unlock and realize the value of the Transferred Assets, including
its TerrAscend securities, the value of which is not adequately
reflected in the Company's current share price. In particular,
pursuant to the Transaction, the Company will be receiving
consideration of approximately $235 million6 for the
TerrAscend exchangeable shares, representing nearly full trading
value of those shares on an as-converted basis.
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(ii)
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The Transaction is
Accretive: The value to be received by Rivers, after taking
into account the cancellation of the 36,468,318 MVS and 15,223,938
SVS held by Canopy Growth, will be immediately accretive to
minority shareholders, since the SVS and MVS will be repurchased at
a discount to the Company's implied net asset value. The
Transaction is accretive notwithstanding the fact that the parties
ascribed a notional 20% premium to the MVS as the basis for their
negotiations.
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Elimination of the Dual Class Share Structure: Upon
closing of the Transaction, the Company and minority shareholders
will derive a number of benefits associated with the elimination of
the Company's dual class share structure, including: enhanced
strategic flexibility, given the absence of a controlling
shareholder; proportionate voting and economic interests of the
Company for all shareholders; and a more attractive share capital
structure for purposes of investments, acquisitions and
capital-raising.
Approvals and Closing Conditions
Rivers will convene a special meeting of shareholders (the
"Meeting") in early 2021 to approve the Transaction.
The Transaction will require approval of at least (a) two-thirds of
the votes cast by both: (i) Canopy Growth as the holder of all of
the MVS; and (ii) Rivers shareholders that hold SVS, and (b) a
simple majority of the votes cast by holders of SVS, excluding the
votes attaching to the SVS held by Canopy Growth. Pursuant to the
Arrangement Agreement, Canopy Growth has agreed to vote all of its
MVS and SVS in favour of the Transaction.
Funds managed by JW Asset Management, the Company's largest
holder of SVS, and each of the Company's directors and executive
officers, which in aggregate represent approximately 24.5% of the
outstanding SVS, excluding the SVS held by Canopy Growth, have
entered into voting support agreements agreeing to vote their SVS
in favour of the Transaction.
Completion of the Transaction is also subject to other customary
approvals and conditions, including approval from the court, TSX
and Nasdaq. The Transaction is expected to close in the first
quarter of calendar year 2021.
Board Approval and Special Committee Process
The Board, other than directors who recused themselves and
abstained from voting due to their role as a director, officer
and/or nominee of Canopy Growth or TerrAscend, unanimously approved
the Arrangement Agreement following a unanimous recommendation of
the Special Committee, which was comprised of directors independent
of Canopy Growth, TerrAscend and management of Rivers. Both the
Special Committee and the Board determined that the Transaction is
fair to, and in the best interests of, the Company and unanimously
recommend that shareholders vote in favour of the Transaction.
The entering into the Arrangement Agreement was preceded by a
review and evaluation of the Transaction by the Special Committee,
which was advised by experienced, qualified and independent
financial and legal advisors. In conducting its review and
evaluation of the Transaction, the Special Committee was actively
involved in, and supervised, negotiations with Canopy Growth.
In connection with its review and evaluation of the Transaction,
the Special Committee engaged Echelon Wealth Partners Inc.
("Echelon") as an independent valuator to prepare a formal
valuation of the Transferred Assets pursuant to Multilateral
Instrument 61-101 and a long-form fairness opinion. The Special
Committee received the formal valuation from Echelon which
concluded that, subject to the scope of review, assumptions,
limitations and qualifications set forth therein, as of
December 21, 2020, the consideration
being received by the Company was above the midpoint of the
valuation range determined by Echelon Partners. The Special
Committee also received an opinion from Echelon that, subject to
the scope of review, assumptions, limitations and qualifications in
such opinion, as of December 21,
2020, the consideration to be received by the Company
pursuant to the Transaction is fair, from a financial point of
view, to the Company.
The Special Committee engaged Eight Capital as financial advisor
to assist in its review, evaluation and negotiation of the
Transaction. The Special Committee received an opinion from Eight
Capital that, subject to the scope of review, assumptions,
limitations and qualifications in such opinion, as of December 21, 2020, the consideration to be
received by the Company pursuant to the Transaction is fair, from a
financial point of view, to the Company.
Additional Information
For further information on the terms and conditions of the
Transaction, please refer to the Arrangement Agreement which will
be available on SEDAR at www.sedar.com. Full details of the
Transaction, including the Echelon formal valuation and fairness
opinion and the Eight Capital fairness opinion, will be included in
a management information circular of the Company to be delivered to
the Company's shareholders in the coming weeks.
Advisors
Eight Capital is serving as financial advisor and Davies Ward
Phillips & Vineberg LLP is acting as legal counsel to the
Special Committee. Echelon served as independent valuator to the
Special Committee.
About Canopy Rivers
Canopy Rivers is a venture capital firm specializing in cannabis
with a portfolio of 18 companies across various segments of the
cannabis value chain. We believe that bringing together people,
capital, and ideas raises the potential of the entire cannabis
industry. By leveraging our industry insights, in-house expertise,
and thesis-driven approach to investing, we aim to provide
shareholders with exposure to specialized and disruptive cannabis
companies. Our mission is to invest in innovators across the
cannabis value chain, help them grow, and ultimately create value
by guiding these companies towards a monetization event. Together
with our portfolio, we are helping build the cannabis industry of
tomorrow, today.
Forward-Looking Statements
This news release contains statements which constitute
"forward-looking information" within the meaning of applicable
securities laws, including statements regarding the plans,
intentions, beliefs and current expectations of the Company with
respect to future business activities and operating performance. To
the extent any forward-looking information in this news release
constitutes "financial outlooks" within the meaning of applicable
Canadian securities laws, the reader is cautioned that this
information may not be appropriate for any other purpose and the
reader should not place undue reliance on such financial outlooks.
Forward-looking information is often identified by the words "may",
"would", "could", "should", "will", "intend", "plan", "anticipate",
"believe", "estimate", "expect" or similar expressions, and
forward-looking information in this news release includes, but is
not limited to, information and statements regarding: whether and
when the Transaction will be consummated; the anticipated benefits
of the Transaction, including the implied value of the Transaction
(including ROIC and IRR), the Company's expectation that the
Transaction will significantly strengthen the Company's balance
sheet and liquidity position, the anticipated cash proceeds from
the Transaction net of the associated tax liability and transaction
costs, the Company's pro forma cash balance and liquid assets upon
completion of the Transaction, the Company's anticipated cash per
share on a pro forma basis and including the value of the Canopy
Growth common shares, the Company's expectation that its balance
sheet will compare favourably with peers in the industry, the
Company's expectation that the Transaction will be immediately
accretive to minority shareholders and the anticipated benefits
associated with the elimination of the Company's dual class share
structure; the Company's intention to invest, acquire and/or merge
with operating U.S. cannabis companies and the value to be derived
therefrom; the possibility that the Company may de-list from the
TSX following completion of the Transaction and list its securities
on a stock exchange that permits investments in and/or acquisitions
of U.S. cannabis companies; the anticipated timing of the Meeting
and the requisite shareholder approvals to be obtained at the
Meeting; the Company obtaining and/or satisfying customary
approvals and conditions, including court approval for the
Transaction; and expectations for other economic, business, and/or
competitive factors.
Investors are cautioned that forward-looking information is
not based on historical fact but instead reflects management's
expectations, estimates or projections concerning future results or
events based on the opinions, assumptions and estimates of
management considered reasonable at the date the statements are
made. Although the Company believes that the expectations reflected
in such forward-looking information are reasonable, such
information involves risks and uncertainties, and undue reliance
should not be placed on such information, as unknown or
unpredictable factors could have material adverse effects on future
results, performance or achievements of the Company. Financial
outlooks, as with forward-looking information generally, are,
without limitation, based on the assumptions and subject to various
risks as set out herein.
Among the key factors that could cause actual results to
differ materially from those projected in the forward-looking
information are the following: the parties' ability to consummate
the Transaction; the ability to receive, in a timely manner and on
satisfactory terms, all necessary regulatory, court, shareholder,
and other third party approvals; the ability of the parties to
satisfy, in a timely manner, all other conditions to the closing of
the Transaction; the potential impact of the announcement or
consummation of the Transaction on relationships, including with
regulatory bodies, stock exchanges, lenders, employees and
competitors; the diversion of management time on the Transaction;
assumptions concerning the Transaction and the operations and
capital expenditure plans of the Company following completion of
the Transaction; credit, liquidity and additional financing risks
for the Company and its investees; stock market volatility;
regulatory and licensing risks; changes in cannabis industry growth
and trends; changes in the business activities, focus and plans of
the Company and its investees and the timing associated therewith;
the Company's actual financial results and ability to manage its
cash resources; changes in general economic, business and political
conditions, including challenging global financial conditions and
the impact of the novel coronavirus pandemic; competition risks;
potential conflicts of interest; the regulatory landscape and
enforcement related to cannabis, including political risks and
risks relating to regulatory change; changes in applicable laws;
changes in the global sentiment towards, and public opinion of, the
cannabis industry; divestiture risks; and the other risk factors
more fully described in the Company's AIF, filed with the Canadian
securities regulators and available on the Company's profile on
SEDAR at www.sedar.com.
Should one or more of these risks or uncertainties
materialize, or should assumptions underlying the forward-looking
information prove incorrect, actual results may vary materially
from those described herein as intended, planned, anticipated,
believed, estimated or expected. Although the Company has attempted
to identify important risks, uncertainties and factors that could
cause actual results to differ materially, there may be others that
cause results not to be as anticipated, estimated or intended. The
Company does not intend, and does not assume any obligation, to
update this forward-looking information except as otherwise
required by applicable law.
_________________________________
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1 Total returns include historical
receipts of royalty payments of $4.1 million up to December 18,
2020, relating to the Company's royalty investment in The Tweed
Tree Lot and the anticipated receipt of interest receivable of $1.0
million in January 2021 relating to the Company's loan investment
in TerrAscend Canada.
|
2 The
estimated tax liability and transaction costs are based on a number
of assumptions and estimates, and will be refined upon further
review and analysis and as additional information becomes
available.
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3 Existing cash balance of $33.8
million adjusted for $2.8 million in commitments to existing
portfolio companies.
|
4 Based on 139.8 million pro forma
basic shares outstanding.
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5 Based on estimated net cash
proceeds from the Transaction of $87.2 million, the Company's
current adjusted cash balance of $31.0 million, and the implied
value of 3.75 million Canopy Growth common shares based on the
closing price on December 18, 2020.
|
6 Based on the closing price of
Canopy Growth common shares on December 18, 2020.
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SOURCE Canopy Rivers Inc.