Hexo to buy Zenabis in latest tie-up in cannabis sector that’s seeing a burst of M&A activity

HEXO (HEXO.TO)(HEXO) has announced a $235 million all-stock deal to acquire rival Canadian cannabis producer Zenabis (ZENA.TO), creating what the companies are billing as a “top three licensed producer” by sales in the country’s recreational market…

Ottawa-based HEXO said the deal will result in about $20 million in savings within a year of closing, and give the company the ability to produce 111,200 kilograms of additional cannabis supply through Vancouver-based Zenabis’ greenhouses. HEXO would also gain a foothold in the European medical cannabis market through a Zenabis partnership.

“Zenabis has built solid relationships, and they share HEXO’s vision of bringing exceptional branded cannabis experiences to adults everywhere, in Canada and abroad,” HEXO CEO and co-founder Sebastien St-Louis said in a news release on Tuesday.

Under the terms, Zenabis shareholders will receive 0.01772 of a share of HEXO for each Zenabis share. The deal amounts to a 19 per cent premium paid to Zenabis shareholders based on the twenty-day volume-weighted average price of Zenabis stock. If completed, the combined company would be 87.43 per cent owned by HEXO shareholders and 12.57 per cent owned by Zenabis shareholders.

The transaction has the support of both company’s boards, but requires regulatory approval and support from over 66 per cent Zenabis shareholders. One member of Zenabis’ executive team is to be appointed to HEXO’s board of post-closing. The terms also include a $6 million termination fee in the event Zenabis accepts a superior bid.

“This is a compelling combination,” Zenabis CEO Shai Altman added in Tuesday’s release. “Our brands and strains strength across Canada, coupled with our international footprint and state of the art low cost and high quality cultivation facilities complements HEXO’s business, creating an industry leader.”

The deal also hinges on Zenabis selling its…

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