The proposed merger of Canadian cannabis companies Tilray Inc. and Aphria Inc. moved a step closer to approval on Friday, when Tilray revised its bylaws to reduce its shareholder vote quorum.
The British Columbia-based company
said it will now require one-third of the voting power of the outstanding shares entitled to vote to approve the deal, instead of a majority of the voting power of the outstanding shares.
Cantor Fitzgerald analyst Pablo Zuanic said the change gives him good conviction that the deal will go through and create what’s expected to be the world’s biggest cannabis company, measured by revenue.
Zuanic estimates that insiders grouped under Privateer Holdings and institutional investors own about 25% of Tilray stock.
“So, now with today’s change, the company has to find “only” another roughly 8% of the voters to reach the desired quorum (we think with insiders and institutional they will have enough votes in favor to get to two thirds),” he wrote in a note to clients.
The analyst acknowledged that Tilray has a large day-trader component to its investor base, who may not care about voting. But proxy solicitors and others tools should help Tilray get the needed quorum, he said.
Tilray earlier this week pushed the date of the special shareholder meeting to April 30 from April 16.
shareholders, meanwhile, voted overwhelmingly in favor of the deal on Thursday with a total of 99.38% of shares voted approving it. Under the terms of the proposed deal, Aphria shareholders will receive 0.8381 of a Tilray share of class 2 common stock for each Aphria share owned.
Zuanic said the arbitrage gap has narrowed since February, when Aphria shares were trading at a 51% discount over the merger conversion price, but said he would still play the deal via Aphria, and not Tilray. At current prices, Aphria is only trading at a 2.2% discount over the conversion price of C$13.96.
“So despite the sector volatility and heavy retail ownership, it seems arbitrage efficiency is working, and the market seems to be saying the deal will happen,” he wrote. Cantor rates Aphria as overweight.
On Monday, Aphria reported a wider-than-expected fiscal third-quarter loss and revenue that rose less than forecast, citing reduced demand resulting from the COVID-19 pandemic.
But Stifel analysts led by W. Andrew Carter were sanguine, sticking with a hold rating on the stock while lowering their price target to C$18 from C$22.
“With the upcoming merger with Tilray, we believe the combined company will be well positioned to leverage a leading Canadian market position to capture global cannabis category growth,” they wrote in a note.
Aphria shares were up 2% Friday, and have gained 100% in the year to date. Tilray was down 0.2% and is up 105% year-to-date. The Cannabis ETF
has gained 41% and the S&P 500
is up 10%.