Newstrike Brands Ltd NWKRF

Thoughts on Merger

[quinlash]

I spend the weekend going through the voting materials and found a few interesting pieces of information in there.  Most interesting was the post-merger sharecount for HIP/HEXO along with the ratios and what that would mean for the value of HEXO based on my own views of what each of the two companies are worth today.
 
After running the numbers again I concluded that there should be a significant increase in the value of HEXO post-merger and therefore a very respectable return on investment for HIP shareholders, even for those coming in at the current shareprice.  With that said, what I calculated for HIP as a target is still grossly under value if NewStrike were to be on it’s own and the shares were trading based on the fundamentals.
 
If the merger were to fail I think it is reasonable to expect the HIP SP to fall, mostly due to investors selling on emotion and not on the actual value of NewStrike as a company but regardless, the SP, IMO, would pullback into the 50’s for a short period of time.  I think the pullback would be short-lived as NewStrike can be expected to publish it’s 2019 Q1 Report on, or around, May 28^th and I expect that report to be strong and would justify a SP higher than what we were seeing leading up to the HEXO merger being announced.  We would also have the Phase II completion NR to look forward to and, as a result of HIP not issuing one for Phase I, the market would be more or less surprised by the significant increase in capacity once the NR is made available… again more attention and better SP for HIP. 
 
At this point I think the key part of the equation is TIME and if HIP investors would prefer to see a decent return on their investment from these levels or a possibly much more significant return a year (+/-) from now after HIP has issued more quarterly reports showing increases in sales from the provinces. 
 
A NO vote can certainly be justified by anyone willing to remain invested for a year or more while the YES vote should produce good returns in the short term and may result in continued gains over the next year as HEXO produces strong reports (in large part due to the HIP contribution).  Another unknown in here is the exposure the new company may begin to gain after edibles become legal and the level of success any new infused drinks HEXO/Molson will roll out, this too could result in the HEXO SP going up.
 
Do your own DD, be sure to assign a value to each of the two companies pre and post merger and work out a fair market value for the shares.  The circular in the voting package contains expected sharecounts and also points out various costs that are associated with the deal not going through.
 
Don’t knock the NO voters on the board, after you do the homework it will likely become obvious why they don’t like the deal.
 
My votes, along with the votes of my friends / family etc, have yet to be filed but will likely be submitted after the weekend.

Regardless of which way you think this merger should go you should make the effort to vote.
 
GLTA
 
Q