Tilray (NASDAQ:TLRY) shareholders will vote on the all-stock merger with Aphria (NASDAQ:APHA) on April 30. Aphria shareholders will receive 0.8381 shares of TLRY stock for every one share of APHA stock they own.
Aphria’s shareholders have already voted and approved the merger on April 15. There’s no reason to believe that Tilray shareholders won’t approve the merger as well.
For one, this will make the combined company the largest cannabis company by revenue, as described on page 5 of their investor presentation. Combined, Tilray and Aphria will make $874 million in revenue compared to $842 million by runner-up Curaleaf (OTCMKTS:CURLF).
A Takeover of Tilray by Aphria
To be sure, this is a takeover of Tilray by Aphria, even though the combined company will keep the Tilray name. Aphria shareholders will end up owning 62.1% of the combined company.
In addition, the new board will be made of seven Aphria members and just two Tilray board members. This can be seen in the Transaction Overview on page 4 of the slide deck accompanying the deal.
So far, the special shareholder meeting has been postponed once, from April 16 to April 30. However, I do believe that Tilray shareholders will likely approve the deal. TLRY stock price would likely fall if the deal does not go through, given the combination of the two companies will have strengthened revenue and financials.
TLRY stock was at $7.87 on Dec. 15, the day before the merger announcement. Since then it has more than doubled to $18.36 as of April 29. Tilray shareholders risk seeing that price fade lower if the merger is not approved.
Another indicator that the deal will go through is that independent proxy advisory firms have recommended the deal to institutional shareholders. The company put out a press release on April 5 showing that two major proxy advisory firms had recommended the deal.
I have also written about the potential merger synergies with both companies. The two companies have identified 100 million CAD (US$80 million) in synergies over the next 12 months.
This will help reduce their combined losses. Tilray lost 271 million CAD for the year ending Dec. 2020 and Aphria has lost 361 million CAD in the nine month period ending Feb. 28. That equals 632 million in losses (U.S. $505 million). Hopefully, the merger will find more than 100 million CAD in synergies to make this company profitable.
What To Do With TLRY Stock
Some investors might want to wait to see if the merger goes through. After all, there is always the possibility that it could fall through.
There is also the idea of “selling the news.” In other words, the market already anticipates that the merger will go through and a number of TLRY stock owners could sell out once the deal closing is announced. They might be waiting for some kind of pop in the stock. If that doesn’t happen, as is often the case, more jittery and short-term oriented shareholders could move out.
Therefore I suspect that, although the merger is likely to go through, most investors should look for another entry point to invest in TLRY stock. There will be a chance to buy TLRY cheaper down the road. Moreover, some might want to see if the proposed synergies actually do pan out, which could take some time. Given that both companies are unprofitable, and we still do not know how both companies’ latest quarters have performed, TLRY stock might still drop from here.
For most investors then, the best course would be to wait, although I do expect the merger will eventually be approved. This means be patient and look to average costs into TLRY stock.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.