SNDL Inc. (NASDAQ:SNDL) and The Valens Company Inc. (NASDAQ:VLNS) (TSX:VLNS) have entered into an arrangement agreement to combine their businesses and create a vertically integrated cannabis platform. Pursuant to the terms of the agreement, SNDL will acquire all of the issued and outstanding common shares of Valens, other than those owned by SNDL and its subsidiaries, by way of a statutory plan of arrangement.
Under the terms of the agreement, Valens' shareholders will receive, for each Valens Share, 0.3334 of a common share of SNDL. Based on the August 19, 2022 close of the SNDL shares on the Nasdaq Capital Market exchange, the consideration represents an implied value of CA$1.26 per Valens Share, for total consideration of approximately CA$138 million ($105.85 million). The implied offer price represents a premium of 10% based on a trailing 30-day volume-weighted average price of the Valens Shares, on the Toronto Stock Exchange up to August 19, 2022.
With 555,500 square feet of cultivation and manufacturing space and 185 cannabis stores under the Spiritleaf and Value Buds banners, the combined company will offer a complete portfolio of branded products to consumers in Canada through its own supply and distribution channels. The combined company will operate as SNDL Inc., and Valens shareholders will own approximately 9.5% of the pro forma entity.
Key Transaction Highlights
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By integrating Valens' product suite into its portfolio, SNDL will increase its overall cannabis market share and its 2.0 product formats market share. As a result of Valens' low-cost platform, SNDL will enhance its own product line while offering pricing flexibility to retail partners.
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The combination of SNDL and Valens is expected to deliver more than CA$10 million of annual cost synergies. Together with incremental revenues from greater distribution of Valens products, it is estimated that the transaction will deliver upwards of CA$15 million of additional EBITDA on an annual run-rate basis through synergies and other strategic initiatives.
Valens' secured non-revolving term loan has been refinanced and upsized with an additional CA$14.3 million of incremental capital, thereby increasing the principal amount of the Term Loan to CA$60 million.
Transaction Details
The transaction will be carried out by way of a court-approved plan of arrangement under the Canada Business Corporations Act, pursuant to which SNDL will acquire all of the issued and outstanding Valens shares, other than those owned by SNDL and its subsidiaries. The implementation of the transaction will be subject to the approval of at least two thirds of the Valens shares entitled to be voted by Valens shareholders and the approval of a simple majority of the Valens shares entitled to be voted by Valens shareholders, other than Valens shareholders required to be excluded under applicable laws, at a special meeting expected to be convened by Valens by the end of November 2022, and the receipt of applicable orders from the Ontario Superior Court of Justice and applicable regulatory approvals, including under the Competition Act (Canada) and the applicable provincial liquor and cannabis regulators. The agreement also provides for the payment of a termination fee of CA$8 million payable to SNDL by Valens in the event the transaction is terminated in certain specified circumstances. The transaction is expected to close during January 2023.
Valens Board Approval
Valens' board of directors has unanimously approved the transaction after receiving the unanimous recommendation of a special committee of Valens directors. Valens' board of directors has unanimously resolved to recommend that the shareholders of Valens vote in favor of the transaction.
Photo by Esteban Lopez on Unsplash
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