The Good, the Bad & the REAL uglyHello again folks. I took some time to analyse the whole deal between Tilray & Hexo, evaluate Hexo's position and what does it all mean. Imho, i still bleieve Tliray made a huge mistake here by picking up their debt, in this case convertibles notes, and i don't believe it was in the best interests of its s/h.
From the very instance this deal was announced, it didn't seem right to me and very strange the way it was strucutured, but maybe i thought to myself that maybe i missed something the guys at Tilray were seeing. But, after listening in to an interview between Tilray & a Bloomberg anaylst duscussing the deal, it's clear to me why this was done. From Tilray's pov, and from this i mean not the whole mgmt team or their bod, but the Ceo himself, it seems this was not only done to pick up some what they believe is a "good" investment, but looking & listenining to the Ceo, more of a sympathetic gesture to save an insolvent company he believes should be bailedout for the betterment of the whole sector. If this is the case, then this brings up two very critical issues, was this really done "in the best interests of Tilray s/h" which coiuld be potentially challenged legally and was this really the "smartest" move by Tilray's Ceo? That's two really big questions that need answering but as this is about Hexo & not Tilray, i won't talk about it now.
As for Hexo's position, things just got brighter at the end of their dark tunnel. I'll make this quick & breif and just state the most critical points i believe are the most relevant here. In essence, Tilray just "saved" Hexo's butt. It vastly improved their chances of getting out of a really bad financial dilemma and as i previously stated, it has bought itself some time to figure things out & for the sector to recover. The points below is what i take away from this.
The GOOD.
Eliminates any chance of BK or filling for CCAA anytime soon, for at least one year, maybe a little more.
This was done by what i had predicted should be done. By negotiating with their debt holders some deal to free up the cash in escrow being held for the note holders. This is where Tilray steps in and takes over that debt & extends the maturity by 3 additional years. This was crucial for three reasons. Gives Hexo access to the $100M for an imediate cash infusion with no dilution, maturity extended & the monthly redemptions, which was killing the stock price, will be greatly reduced and will be eventually stopped.
Ariv & company made available to Hexo another $180M in credit & financial backstop, just in case it's needed. This will give Hexo a few quarters to become profitable and generate a posotive revenue stream, if it is possible, at least buys them time.
The BAD
Hexo gave away 50% of the company to Tilray for $210US. Whether this benefits more Tilray or Hexo depends where things go from here.
Monthly redemptions not finished just yet. The previous owners still have the possibility to redeem another $30M in redemptions before it stops or until the deal closes. Which could take up to another month or so.
Should the company run into financial diffilculties again and file for BK or CCAA. Then Tilray get everything as being prime & sole lender & priority over equity holdings. As the are no other creditors & any liquidation process will not involve any competing bids for the assets as everything will go to Tilray.
The UGLY
Because of the way this deal is structured & the details involved, the stock will be capped under $1 for the remainder of it's lifespan.
Is this the end for Hexo as a stand alone company? This will depend on how things develope from here AND what suitable "plan forward" was discussed between Tilray Ceo Irwin Simon & the folks at Hexo.
I believe this will begin to materialize at the company's s/h meeting this month during the voting of the resolutions. Two very important items will probably show the way things where we will be headed imo. This will be the matter of the conolidation of share captial, and whether it is still required or not. Which will lead to and only be necessary for the following item, the US Nasdaq listing.
Imo, IF they drop the reverse split or it gets voted down at the s/h meeting, then you know they will be dropping their Nasdaq listing eventually as well. And this all leads to what is the "intention" of Tilray for Hexo. Is it just an investment or something else? Because if Tilray intends to eventually takeover Hexo in it's entirety at some point, then by all means & purposes Hexo's US listing isn't necessary anymore is it? So watchout for the voting & direction, mgmt of those two items.
Final thoughts. For Hexo s/h, even though things have somewhat improved for the company in the sohrt term, i still believe you should be selling out here, for the reasons i've discussed above. That nice pop yesterday was a beautiful opportunity, given to you free of charge to do just that. You will not see this over $1 ever again. What you do have now which wasn't available to you before as a Hexo s/h though, is another life & another option. Should things go sour or south here, you could possibly be given the choice to be a Tilray s/h instead of losing your whole investment.
GLTA