Market Overview

Cantor Analyst Rises Aphria Price Target After $3.5B Merger With Aurora Stalls

Cantor Analyst Rises Aphria Price Target After $3.5B Merger With Aurora Stalls

Aphria (TSE: APHA) (NASDAQ: APHA) and Aurora Cannabis (TSE: ACB) (NYSE: ACB) were considering a merger, but suspended talks after failing to agree on board composition, according to Bloomberg News.

If a deal had come to fruition, the combined entity would be valued at roughy $3.5 billion and maintain a 30 percent marketshare of the Canadian recreational cannabis sector.

Analyst Remarks 

Cantor Fitzgerald's Pablo Zuanic maintains an overweight stance on both companies.

Regarding APHA, Zuanic increased its 12-month price target from C$9.55 to C$10.50. Aphria’s fourth-quarter 2020 results are expected to be released on July 28.

Due to the economic disruptions generated by COVID pandemic, Zuanic anticipates small gains in profitability, modeling gross margins to stay at 25% - consolidated - and EBITDA at C$7.7 million - 5.1% of sales.

See Zuanic’s track record here.

Why The Merger Matters 

The initial proposed terms would have settled Aphria’s shareholders with 51% and Aurora’s with 49%. According to Zuanic, the new company would have been created by a share swap. It could generate $200 million in cost synergies over time.

In addition, it would have active operations in a combined 25 countries, and have a combined annual revenue exceeding $800 million.

Aphria chief corporate affairs officer Tamara Macgregor told Bloomberg that "while the company may engage in discussions with potential strategic partners from time to time, the company can confirm that there is no agreement, understanding or arrangement of any kind in place with Aurora regarding any potential transaction or merger between the parties."

Aphria will "advise the investment community of any material events to the company, if and when they occur," Macgregor added.

Both companies share a similar business model and are considered the top players in the market, with a variety of product offerings including edibles and vapes.


At the time of publication of the analysis, Aphria's market cap was C$1.865 million and Aurora’s C$1.888 million. Per Zuanic: If Aphria’s shareholders were to get, as initially stated, 51% of the new combined proforma market cap — C$3.744 million — it would represent a 3% premium for them and a 3% discount to Aurora’s holders. Current proforma net cash at Aphria is C$120 million and net debt C$400 million.

"If we take 15x EBITDA, parcel this value creation 51/49, and adjust for respective net debt, we estimate the effective upside for ACB shareholders would be 59% and 51% for APHA. All this before factoring the many intangibles of the strategic benefits," Zuanic stated. “Given the differences in profitabillity and debt levels we do not think the arrangement would be unreasonable.”


According to Cantor, synergies estimates are around 30% of combined cannabis revenue, putting the company in a path to mid-20s EBITDA. Aurora would generate negative EBITDA of C$14 million in the june quarter, and Aphria sould post adjusted EBITDA of +C$5 million. Efficiencies of C$200 million would imply EBITDA margins of 27%.

Courtesy photo


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