Canopy Growth (TSE: WEED) (NYSE: CGC) continues its quest to enter the U.S market. One of the ways it hopes to achieve this goal is through the acquisition of New York-based Acreage Holdings Inc. (OTCMKTS: ACRGF). The deal will give Canopy Growth a foothold to distribute its product in the 20 states of the United States that are now cannabis legal. However, some investors of Acreage Holdings Inc. are not happy about the decision. Since the announcement of the deal, Acreage’s shares have dropped by 2.3% on the CSE while Canopy Growth’s stock appreciated by 13% on TSE.
Canopy Growth is proposing to acquire Acreage for $3.4 billion. However, San Francisco-based Marcato Capital Management LP which owns about 2.7% of Acreage (roughly 575,000 shares) is of the opinion that the $3.4 billion valuation is lower than the fair valuation. For this reason, Marcato Capital is planning to vote against the proposed transaction in June when the shareholders meeting is expected to take place.
A press release from Marcato Capital read, “As a large Acreage shareholder, we will be voting against the proposed transaction with Canopy Growth Corporation as we believe this is a value destruction transaction and not in the best interest of shareholders. Let us explain, the headline transaction value of $3.4 billion is substantially lower than the fair value of Acreage based solely on the present value of Acreage’s future cash flows.”
According to a letter by Marcato Capital founder, Mick McGuire, “We believe Acreage’s strategic value as one of the few multi-state operators of scale in the U.S., with leading positions in the most valuable markets merits a significant premium to any stand-alone cash-flow derived valuation.”
Looking at the considerably low stake Marcato Capital has in Acreage, one wonders if they will be able to halt Acreage’s acquisition by Canopy Growth. Peradventure Canopy Growth fails to pull through with the acquisition, it will be a big blow to their planned move into the legal U.S. cannabis market.
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