Merger and Acquisition, mean slightly different things:
When one company takes over another and clearly establishes itself as the new owner (Aphria-62%), the purchase is called an acquisition (reverse). From a legal point of view, the target company ceases to exist (Tilray). The buyer (Aphria) swallows the business and the buyers (Aphria) stock continues to be traded. Little twist here however, with the decision to keep Tilray name and TLRY ticker. Aphria ceases to exist on Nasgaq and TSX. However, lets be clear, it really is Aphria, with the decision to keep the Tilray name. Sometime in Aphria Q2, if it goes through. All hype right now, so don’t get the carriage ahead of the horse.
- Amicable take over, rather than hostile
- Aphria will be a subsidiary of Tilray
- TLRY Nasdaq and most likely will be on TSX when complete, so no worries about exchange rates. No fees to change the ticker to TLRY. Can be completed in just weeks.
- Cross Sellling, Branding both Aphria and Tilray. People know the brand. Keep one name (Tilray) and demote the other (Aphria, stigma/poor history on the name). Tilray the company, Aphria demoted to divisional/subsiduary brand name or product brand. Brand value lost and cost involved in changing brand.
- Stock Transaction, issued at a given ratio proportional to valuation. 0 .838/1. i.e …1000 Apria shares will get you 838 Tilray shares. I think I have that correct. Some post have been very confusing.
- Combined company can reduce fixed costs by removing duplicate departments or operations, thus increasing profit margins
- Increased revenue or market share, absorbing a competitor
- Cross selling, a manufacture can acquire and sell complementary products
- Synergy, increased order size and bulk buying/selling discounts
- Taxation, reduce tax liability
- Geographical or other diversification, gives conservative investors more confidence in investing in a company
- Vertically integration, create a monopoly level
- Empire building, CEO’s have larger company to manage…hence more power.
When one company acquires another, the stock price of the acquiring company tends to dip temporarily, while the stock price of the target company tends to spike. The acquiring company’s share drops because it is often pays a premium for the target company, or incurs dept. to refinance the acquisition.
They tend to move in opposite directions as we have seen in the past week, in order to provide an incentive for the target company’s shareholders to approve the takeover.
Over the long haul, an acquisition tends to boost the acquiring company’s share price.
Its important to remember that although the acquiring company may experience a short term drop in stock price, in the long run, its share price should flourish, as long as its management (IS and team) properly valued the target company and efficiently integrates the two entities.
Its up to you King Simon, are you really the $20 million CAD Man??? Only time well tell. Don’t let the shareholders down or your place in legal cannabis history will be tarnished...like your predecessors!!!
Cheers,
Ventura