Shares of Tilray soared 18.6% on Wednesday after the company confirmed that it has entered into an agreement to merge with its Canadian cannabis peer Aphria. Earlier, on Dec. 15, Bloomberg had reported that the two companies are in advanced merger talks.
Per the deal, Aphria shareholders will receive 0.8381 shares of Tilray (TLRY) for each Aphria common share. Meanwhile, Tilray shareholders will continue to hold their shares with no adjustment. Post completion of the deal, Aphria shareholders will own about 62% of Tilray’s outstanding shares.
Tilray stated the merger will “create the world’s largest global cannabis company” with a combined equity value of about C$5 billion ($3.9 billion). The combined company is anticipated to have revenue of C$874 million ($685 million) and generate about C$100 million in cost synergies within two years of deal completion. The transaction is anticipated to be completed during the second quarter of 2021.
Following deal closure, the new company will retain Tilray as its corporate name. Tilray further disclosed that Aphria’s current CEO Irwin Simon would be appointed as CEO of the combined company. (See TLRY stock analysis on TipRanks)
Roth Capital analyst Scott Fortune called the merger deal a “sensible combination” between a low-cost production company with a top global brands and distribution facilities. Fortune expects over C$100 in cost synergies following the deal closure. Meanwhile, the analyst reiterated a Hold rating on the stock.
Overall, the Street is sidelined on the stock. The Hold analyst consensus is based on 6 Holds, 1 Buy and 2 Sells. Shares have dropped by 45.5% year-to-date and the average price target stands of $9.01 implies an additional downside potential of about 3.4% to current levels.
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