Hexo (NASDAQ:HEXO) stock is up more than 7% this morning after it was announced that Tilray (NASDAQ:TLRY) would acquire a portion of its debt. As part of the agreement, Tilray will acquire up to $211 million of Hexo’s senior secured convertible notes. Since the notes are convertible, Tilray will be able to acquire a “significant equity ownership position” in Hexo. The purchase suggests that Tilray has the right to convert the notes into 37% of Hexo’s outstanding shares. Additionally, the notes will be amended for Tilray to exercise conversion rights at 71 cents. That is nearly 25% higher than the Wednesday closing price of 57 cents for HEXO stock.
Furthermore, the notes will provide Tilray with 20 million CAD ($15.8 million) in interest payments during the first year. These interest payments will add about 4 cents to Tilray’s future earnings per share (EPS). Tilray CEO Irwin Simon believes the collaboration will provide solid synergy benefits:
“We also expect to realize further commercial and production efficiency savings of up to C$50 million within two years, which would be shared equally and would allow us to continue being the leading, low-cost Canadian producer. I look forward to working with HEXO’s management team and Board to create additional brand and shareholder value.”
So, what else should investors in HEXO, TLRY stocks know about the debt acquisition? Let’s jump right in.
HEXO, TLRY Stocks: 8 Things to Know About the Debt Acquisition
- Tilray will acquire the notes from “funds affiliated” with HT Investments (HTI). Hexo originally issued the notes to HTI.
- Additionally, Tilray will pay 95% of the current outstanding principal for the notes.
- HTI has the option to redeem a certain amount of notes prior to the completion of Tilray’s purchase. However, the principal of the notes purchased by Tilray will be no less than $182 million.
- Tilray plans on nominating Denise Faltischek to Hexo’s board of directors upon closing the transaction.
- After the purchase, Hexo will extend the note maturity date to May 1, 2026.
- The extension will provide Hexo with “flexibility and time to continue implementing its strategic ‘The Path Forward’ growth plan.”
- Meanwhile, Hexo has also signed an agreement to accept a 180 million CAD ($141.9 million) “three-year equity backstop” from KAOS Capital.
- Shares of TLRY stock are currently down more than 5% on the news.
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On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
