Hexo jumps as acquisition of Zenabis is announced

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The cannabis company’s stock is on the rise following the latest cannabis M&A action

Two more large Canadian cannabis companies have announced a partnership based on an all-stock deal valued at about $185.2 million. This follows a period of high activity in mergers and acquisitions, which began with the November 3 elections in the US. Ottawa-based Hexo will pay the stockholders of Vancouver-based Zenabis in a rather complicated looking deal that exchanges 0.01772 of a HEXO share for each Zenabis share.

This is equal to a premium of about 19% based on the 20-day volume-weighted average price of Zenabis common shares and HEXO common shares on the Toronto Stock Exchange since February 12, 2021. The deal now awaits approval by Zenabis shareholders, who are holding a special meeting just to discuss and vote on this issue. Should negotiations fall through at this point, Zenabis will have to face a termination fee of over $4.7 million.

Once the deal goes through, the new entity will become one of the top three licensed producers in the Canadian legal recreational adult-use cannabis market by sales. Additionally, the merger will open the door for HEXO to the European medical cannabis market through Zenabis’ local partner in Malta where they already have a well-established facility supplying pharmaceutical products to the European Union market.

The combined companies are predicting that the merger will generate annual synergies of about $15.7 million within one year of closing. The deal also nets HEXO an additional two indoor cultivation facilities of about 635,000 square feet. When it is all said and done, Hexo shareholders will own 87.43% of the newly combined companies and Zenabis shareholders will hold the remaining 12.57%.