Valued of the ACB - CMED deal = $12.646 ACB =$42.99 per CMED
I'm trying to understand the true value of CMED since it's trading at less that $650M today closing at $26.45 yesterday. As with others, CMED, ACB, WEED. APH all got caught in the market wide and sector wide correction. I am sorry for those who bought CMED above $40 when everyone was bullish but if it's any consolation, new investors like myself are more interested now than we were a few week ago..
It's obvious short sellers are out in force fabricating a wide range of nonsense around this but we must figure out where to put our cash without losing it in the turmoil.
The market hasn't stopped growing, in fact it hasn't started yet. Recreational cannabis is still not legal across Canada and is still "underground" for the most part. That will dramatically change in less than six months. On the world stage, cannabis is just starting to attract attention and the older guard is falling. Cannabis and hemp have huge benefits and the genie is being taken out of the bottle.
Getting back to Cannimed specifically here:
The first offer was 4.5 ACB shares per CMED share capped at $24. That was rejected by management. The second offer, agreed to five days ago, was January 24th, at the height of the market. That was before the well needed macro and sector correction. The current offer is 3.4 ACB shares per CMED shares with no cap. An important difference was an option to take cash instead of shares.
The total cash component is capped at $140M and subject to pro-ration based on the number of shares tendered for cash. The press release provides an example of a cash component being at $5.70 on full election per cash. Election of cash at maximum total cash cap drops the number of ACB shares per CMED shares to 2.9493.
If you elect to take cash, the number of shares drops by 3.4-2.9493=0.4507 shares in exchange for the full pro-ration of $5.70 in cash. That's clear and documented in the press release and in the “Improved Offer”.
That implies the value of a ACB share to be $5.70*(1/0.4507)= $12.646 cash which is in accordance with the press release "Aurora's implied share price of $12.65"
So now comes the unknown. What percentage of CMED holders in shares, will select the full in share exchange versus the cash option? According to a Harvard Business Review, this can be as much as 75% in come cases but I'd like to see if people here have other percentages and why?
https://hbr.org/1999/11/stock-or-cash-the-trade-offs-for-buyers-and-sellers-in-mergers-and-acquisitions
This article is dated but the numbers are very good and it's worth the read this weekend if you have time. It addresses some core points of the ACB-CMED merger
"more and more companies are finding mergers and acquisitions to be a compelling strategy for growth."
"What is striking about acquisitions in the 1990s, however, is the way they’re being paid for. In 1988, nearly 60% of the value of large deals—those over $100 million—was paid for entirely in cash. Less than 2% was paid for in stock. But just ten years later, the profile is almost reversed: 50% of the value of all large deals in 1998 was paid for entirely in stock, and only 17% was paid for entirely in cash."
One paragraph explains why CMED is currently trading at a discount to ACB. I went back all the discussions here and I can’t locate any other credible explanation.
"The main distinction between cash and stock transactions is this: In cash transactions, acquiring shareholders take on the entire risk that the expected synergy value embedded in the acquisition premium will not materialize. In stock transactions, that risk is shared with selling shareholders. More precisely, in stock transactions, the synergy risk is shared in proportion to the percentage of the combined company the acquiring and selling shareholders each will own."
It appears CMED shareholders are fleeing this name more than ACB shareholders because CMED holders do not feel the combined entity will be better. While ACB shareholders are more bullish of the abilities of ACB to leverage Cannimed's products and know-how heading into recreational legalization. Although I'm relatively new here, I tend to agree with ACB shareholders. Except for the short term market corrections, there's every reason to be bullish here. Short term, those new to the markets without a good footing in technical analysis or macro fundamental analysis will panic. That's normal. The herd mentality is strong, both ways.
The market correction allows investors like myself who have ignored this space to jump in at much better prices than just two weeks ago. And frankly, I don't see anyone here that has a credible argument to be bearish with a stock that is worth $43 in cash (or cash and shares) sold at almost half less because of the market wide fear the bears are in control. It appears that some more experienced traders are all over this?