Patience Paying Dividends As Aphria Inc (TSE:APH) Reportedly Pursued By Altria
It appears the waiting game employed by Aphria Inc (TSE:APH) (OTCMKTS:APHQF) (FRA:10E) CEO Vic Neufeld may be paying dividends. Pressed by impatient investors to partner-up with any number of interested transnational conglomerates, Mr. Neufeld appears to be slow-playing his hand in an effort to obtain the best deal. It seems to be working.
Today, the Globe & Mail reported that Altria Group Inc. is in talks to purchase a stake in the Leamington-based licensed producer. Details of Altria’s proposal are still being discussed, and no assurances can be made that an offer with ultimately materialize. Still, the originator’s sources revealed that high-level executives of both companies have met on several occasions, with recent in-person discussions taking place a couple of days ago. This is a big deal coming from multiple sources exacting specific details.
While the big takeaway is undoubtedly Altria’s minority stake interest in a company 30-times its junior by market cap, it’s Vic Neufeld’s maneuvering which is perhaps getting overlooked.
Recall back on June 22nd, when BNN Bloomberg reported that Molson Coors Brewing Company was in serious and ongoing talks with several Canadian-based cannabis LPs to invest and collaborate on future cannabis-infused beverages. Aphria was singled out as a front-runner in those talks. Coincidentally, that story was also released at approximately 2:00 pm EST, causing tremors in the share price. Perhaps short-sellers should take note of that particular time going forward.
Regardless, we’re now well aware how those talks ultimately played out. Negotiations between Aphria and Hexo Corp. went down to the wire, with Molson opting to joint venture with the Gatineau-based LP. The post deal forensics give a glimpse as to why: Molson Coors received favorable terms across the board, requiring no direct investment, acquiring majority JV control, along with 11.50 million full share warrants at beneficial prices.
While those terms were enough to assuage Hexo to move forward, Vic Neufeld seemed determined to hold out for more.
This became abundantly clear just days later in a post-mortem interview conducted with Midas Letter Founder James West. Mr. Neufeld went on record denoting his disappointment with elements of the negotiations, stating:
“And what didn’t happen is a major global beer brand making a real big statement in this space… There was no equity investment, there’s no injection of gray matter… It was not what I think the market expected. Forget the name Hydropothecary; the concept was not as transformational as was thought.”
Aphria, it was strongly inferred, was unwilling to bend to Molson’s hard line.
Further evidence of Aphria’s determination for a better deal arose last month, when reports surfaced that the company had held partnership talks with Coca-Cola Co. before discussions stalled-out. While it’s unclear why negotiations ultimately forestalled, GMP Securities LP Managing Director of equity research, Martin Landry, noted Coca-Cola or Switzerland-based Nestle S.A. would likely favor joint-venture type partnerships, rather than large equity-type investments.
Thus, it appears Vic Neufeld’s public statements regarding the Molson-Hexo deal weren’t empty platitudes of a man upset that another competitor ate his lunch. There’s tangible evidence that he is determined to ink a deal similar in scope to the minority 9.9% equity stake Constellation Brands took in Canopy Growth last October. Current Altria talks, reportedly, provide just that: an equity partnership where each company shares in the spoils congruently.
Interestingly, Mr. Neufeld foreshadowed future Altria talks in the post-mortem Molson interview discussed above. Shortly after expressing displeasure with the terms in the interview lead-in, Vic went on to say:
“So there’s a global identity happening in terms of spirits, and I’d be remiss if I didn’t also say tobacco. Whether it’s JTI, it’s PM, it’s Altria, there are others that have tiptoed in the European marketplace…”
The prediction that Big Tobacco would come calling has proven prescient indeed. Fortunately for Aphria investors, the company didn’t play the first couple hands it was dealt, with promises of much bigger bounty on the horizon.
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