Shares of Cronos Group Inc CRON soared 25 percent Friday morning after the Canada-based cannabis company confirmed it received a C$2.4 billion ($1.8 billion) investment from cigarette company Altria Group Inc MO.
Rumors of a potential acquisition between the two companies were reported earlier this week.
As part of a strategic investment, Altria will acquire a 45-percent equity stake in Cronos at a price of C$16.25 with a warrant to buy incremental shares at a price of C$19 per share which can be exercised over four years from the transaction closing date. Doing so would lift Altria's status to a majority shareholder as it would own around 55 percent of the company.
The agreement allows Altria to nominate four directors to Cronos' board of directors, including one independent director.
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Why It's Important
Altria's Chairman and CEO Howard Willard said Cronos will serve as the company's exclusive partner in the global cannabis category. The new relationship represents an "exciting new growth opportunity" and Cronos is backed by an "excellent management team."
Cronos Chairman and CEO Mike Gorenstein said Altria is an ideal partner as it can offer the "resources and expertise we need to meaningfully accelerate our strategic growth."
Cronos will use the proceeds to more quickly expand its global infrastructure and distribution footprint while also increasing investments in R&D and brands. The transaction is expected to close in the first half of 2019. Cronos will remain a Canada-based company and will continue to be led by its existing management team.
At time of publication, Cronos Group was trading up 32 percent to $13.88 per share. Altria shares were up about 2.5 percent.
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