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March 17, 2019, 9:51 a.m. EDT
Aurora Cannabis soars on news it's hiring hedge-fund manager Nelson Peltz as adviser
Hexo Corp. climbs 3.7% on news it is acquiring smaller rival Newstrike Brands in all-stock deal
Aurora Cannabis Inc. (ACB)
Procter & Gamble Co. (PG)
By Ciara Linnane, MarketWatch
MarketWatch photo illustration/Getty Images, iStockphoto
Hedge-fund manager and activist investor Nelson Peltz is entering the cannabis sector
Aurora Cannabis Inc. led a rally in cannabis stocks Wednesday, after the company said it's hiring hedge-fund manager Nelson Peltz as an adviser with the aim of sealing new cooperation agreements and expanding globally.
The stock /zigman2/quotes/210559470/composite ACB +0.67% /zigman2/quotes/203734337/delayed CA:ACB -0.98% was last up 11.7%. Peltz, the founder of Trian Fund Management L.P., is a well known activist investor who has run campaigns to shake up management and operations at a range of companies, including Procter & Gamble Co. /zigman2/quotes/202894679/composite PG -0.75% , the former DuPont and Dow Chemical, newly merged as DowDuPont Inc. and General Electric Co. /zigman2/quotes/208495069/composite GE -2.83% He is chairman of fast-food chain Wendy's Co. /zigman2/quotes/204070192/composite WEN +3.79% and currently sits on the boards of P&G, food services giant Sysco Corp. /zigman2/quotes/205335941/composite SYY +0.08% and The Madison Square Garden Co.
Jefferies analyst Owen Bennett said the news bolsters his view of Aurora as well positioned to become a global leader in the sector.
"Some investor pushback on Aurora's investment case is they have spent large amounts on numerous assets across the value chain, with perhaps little thought to which are best suited," Bennett wrote in a note to clients. "Peltz should support in ensuring assets are kept that yield most value. Given his past, we would also suggest that his involvement should support in maximizing the route towards profitability."
Jefferies has a buy rating on Aurora stock and a $12 price target, equal to about 13% above its priors-session closing price.
Michael Cammarata, founder of Random Occurrence, a venture capital and private-equity firm, and CEO of Unilever's /zigman2/quotes/204685760/composite UL -0.27% Schmidt's Naturals, agreed.
"What I'm looking at in a cannabis play is who will win the first mainstream brand," he said. "There's been a lot of focus on extraction, or farming or the licenses and international markets, but not really on building a brand. I think Peltz will also push them to focus on margins."
Peltz will be granted options to purchase 19.9 million common shares in the company at C$10.34 ($7.74) a share. The options will vest over a four-year period on a quarterly basis, and the vesting may accelerate if the company meet certain goals, including the consummation of certain defined transactions and the share price being at least at C$31.02 and C$41.36 for a specified number of trading days.
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Hexo Corp. shares /zigman2/quotes/206508254/composite HEXO +1.12% /zigman2/quotes/200008967/delayed CA:HEXO -0.76% rose 3.9% after the Quebec-based company said it has agreed to acquire its smaller rival, Toronto-based Newstrike Brands Ltd. in an all-stock deal valued at about C$263 million. Newstrike shareholders will receive 0.06332 Hexo shares for each Newstrike share owned. Both boards have approved the deal which must now be approved by shareholders.
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The deal will give Hexo an extra capacity of roughly 150,000 kg of cannabis annually and diversify its domestic market distribution. The combined companies will have agreement in 8 Canadian provinces, including Quebec, British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, and Prince Edward Island. The companies expect to generate annual synergies of $10 million. Hexo is expecting to achieve net revenues from Canadian cannabis sales of $400 million for fiscal 2020.
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"We expect this to be taken positively with the addition of a strong recreational brand, but reiterate concerns around Hexo's valuation with question marks over other areas of the business and yet to be seen validation of its strategy to be an ingredient provider," Jefferies Bennett wrote in a note.
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Aurora Cannabis Inc.
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Wendy's Co.
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Sysco Corp.
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Unilever PLC ADR
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HEXO Corp.
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