Aurora Cannabis is doing more than saying no to Curaleaf.
In its formal response to Curaleaf Holdings Inc.’s hostile takeover bid, Aurora’s board unanimously urged shareholders not to tender their shares and disclosed that advisers are evaluating strategic alternatives, including potential competing offers.
That turns the fight from a simple referendum on Curaleaf’s bid into a broader question: If Aurora believes the offer is too low, can it produce something better?
The answer may depend on which side shareholders find more convincing on three issues now at the center of the dispute:
- What Aurora is worth.
- How much future upside Aurora investors would receive.
- How much voting power they would surrender.
Aurora’s directors’ circular is dated September 1 and was released publicly September 2; Curaleaf issued its response later the same day.
Aurora’s board has retained Fort Capital to evaluate alternatives to the hostile bid, including improvements to the company’s standalone plan and potential offers from other parties. The board acknowledged Curaleaf’s bid could attract other interested buyers, while cautioning there is no assurance another proposal will emerge.
Curaleaf is offering Aurora shareholders $0.75 in cash plus 0.3463 Curaleaf subordinate voting shares for each Aurora share. Curaleaf valued the package at approximately $4 per share when it announced the bid, based on its August 10 share price. The stock component can decline with Curaleaf’s shares, but total consideration is capped at $5 per Aurora share if Curaleaf stock rises.
Aurora’s board recommended shareholders take no action. Those who already tendered were advised to withdraw their shares.
What is Aurora actually worth?
The two companies disagree fundamentally about what represents fair value.
Aurora argues Curaleaf’s headline premium understates the value of the company’s cash, international medical-cannabis business, and future growth. Its directors’ circular compares the offer with several valuation measures and recent Canadian cannabis transactions, including an analysis that applies a 1.8-times trailing-revenue multiple and produces an implied value of approximately $7.03 per Aurora share.
That is Aurora’s analysis, not an established market value. The calculation depends on the transactions selected as comparisons and on assumptions about what premium Aurora deserves.
Fort Capital nevertheless concluded Curaleaf’s consideration is inadequate from a financial perspective after reviewing comparable companies, precedent transactions, and a discounted-cash-flow analysis. Its opinion relied in part on Aurora management forecasts that have not been made public and is subject to assumptions and limitations disclosed in the circular.
Curaleaf responded by arguing the market already has supplied a less flattering assessment of Aurora’s value.
The company pointed to Aurora shares issued through an at-the-market program during the past two quarters at average prices of $3.57 and $3.09, below the value Curaleaf assigned to its offer. Curaleaf also said Aurora has raised approximately $398 million through equity issuances since September 2020, arguing the debt-free balance sheet Aurora touts came at the cost of substantial shareholder dilution.
Aurora Executive Chairman and Chief Executive Officer Miguel Martin framed the balance-sheet disparity more aggressively, arguing Curaleaf would gain control of Aurora’s debt-free balance sheet and approximately C$149 million in cash while shifting its own financial risks onto Aurora investors.
“Curaleaf is attempting to use Aurora shareholders’ own cash to help finance this bid, acquire Aurora’s assets at a discount, and shift material risks onto our shareholders,” Martin said.
The financial risk Martin emphasized centers on what he termed Curaleaf’s “over $1 billion in debt,” which Aurora defines broadly to include debt, financial obligations, and lease liabilities. Curaleaf, meanwhile, says its operating cash flow is sufficient to support its obligations and projects leverage will decline.
In other words, Aurora says the market is failing to recognize the value of a business still emerging from years of restructuring. Curaleaf says the market price reflects the business Aurora actually has delivered.
Shareholders must decide which proposition they believe.
Who gets the upside?
The disagreement becomes more complicated when the companies turn from current value to what a combination might produce.
Curaleaf has projected approximately $40 million in annual synergies from combining the businesses. In an emailed response to mg Magazine, Curaleaf said the projection represents estimated run-rate pre-tax savings for the combined company rather than a pool of cash divided between shareholder groups. The spokesperson said the benefits would accrue to all shareholders as the synergies are realized.
But Aurora argues the proposed exchange ratio would leave its shareholders with only a small portion of the value created by those savings. Based on Aurora’s analysis, more than 90 percent of the value associated with the projected synergies would accrue to existing Curaleaf shareholders. That calculation assumes the value of the projected synergies should be shared equally between the two shareholder groups, an assumption Curaleaf does not accept.
That raises a legitimate question Curaleaf’s public response and subsequent statement to mg Magazine did not directly answer: If Aurora is responsible for part of the value created by the combination, how much of that value should Aurora shareholders receive?
Curaleaf instead emphasized the broader upside it says Aurora investors would gain by owning shares in a larger company with exposure to U.S. medical and adult-use markets, European medical cannabis, and potential U.S. regulatory reform.
Ownership is not the same as control
The sharpest disagreement may concern what Aurora shareholders actually would own after the transaction.
Aurora calculated its investors would receive approximately 7.7 percent of the combined company’s equity but only 3.2 percent of its voting power because Curaleaf’s multiple-voting-share structure concentrates control with insiders.
Curaleaf did not dispute Aurora’s equity and voting-power calculations. Instead, the company defended its multi-class structure by arguing that substantial insider ownership aligns management with shareholders.
“Curaleaf insiders have nearly US$500 million of their own money invested alongside shareholders, representing approximately 20 percent of the company’s economic interest, compared with approximately 1% insider ownership at Aurora,” a company spokesperson told mg Magazine in an email.
Curaleaf filings support the broader claim of substantial insider ownership and concentrated voting control, although the $500 million figure reflects Curaleaf’s own valuation.
That answers the philosophical objection to concentrated control. It does not answer Aurora’s arithmetic.
Aurora shareholders therefore face a relatively straightforward tradeoff: They would exchange ownership of an independent company for a minority economic stake in a much larger one, while receiving considerably less voting influence than their economic ownership percentage would suggest.
Curaleaf turns up the temperature
Curaleaf’s response was considerably less restrained than Aurora’s directors’ circular.
The company attacked Aurora’s valuation case, cash generation, history of equity issuance, and management’s repeated restructuring efforts. Executive Chairman and CEO Boris Jordan accused Aurora’s board of refusing even to discuss price, saying the company has never presented Curaleaf with a counteroffer and suggesting management is more interested in preserving its positions than creating shareholder value.
Curaleaf also challenged Aurora’s criticism of its debt load, arguing the company generates sufficient operating cash flow to support its obligations and expects leverage to decline. It countered Aurora’s liquidity argument with its own trading statistics, saying Curaleaf shares traded more value on the TSX year to date than Aurora shares traded on Nasdaq.
At one point, the response became personal.
In defending management alignment, Curaleaf noted Jordan works at company headquarters alongside his executive team, then contrasted that arrangement with Aurora CEO Martin running the Canadian company from his home in the United States. The comparison does not directly address the valuation, economics, or governance terms Aurora shareholders are being asked to evaluate.
Aurora leaves the door open
For all the increasingly pointed rhetoric, neither side controls the final decision yet.
Curaleaf’s spokesperson reiterated the company “is ready and willing to engage in a constructive discussion with Aurora on the particulars of the transaction. It is Aurora that has refused to engage constructively.” The company did not say whether it would increase or otherwise revise its offer.
Aurora, meanwhile, has stopped short of saying remaining independent is the only acceptable outcome.
For now, Aurora is asking shareholders to wait rather than choose. Curaleaf wants them to evaluate the offer on the table; Aurora is betting time may produce a better one.
