Activist investor Mick McGuire’s hedge fund Marcato Capital Management came out against Canopy Growth Corp (NYSE: CGC)’s acquisition of Acreage Holdings Inc (OTC: ACRGF) in a letter sent to Acreage’s board of directors.
The letter comes as a response to the deal that calls for Canopy to acquire Acreage for $3.4 billion in cash and stock.
Under the deal’s terms, Acreage shareholders would receive $300 million in cash upfront and will receive stock later if and when cannabis is legalized on a federal level in the U.S.
In its letter, Marcato argues that the deal was signed too hastily and the offer is too low, since Acreage has a lot of “unlocked growth and value embedded in the company.”
“We believe Acreage’s strategic value, as one of the few multistate 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,” Marcato said in the letter.
The letter also said that cannabis companies will see their enterprise values surge when federal restrictions on cannabis are relaxed.
Marcato owns around 2.7 percent of Acreage’s stock.
Why It’s Important
Shareholder activism is a new factor in the cannabis industry, which in itself is still emerging and is represented by a handful of public companies, most of which are trading on the over-the-counter market in the U.S.
McGuire, who is a former protege of well-known activist investor Bill Ackman, has built quite a name for himself and for Marcato by targeting companies like Buffalo Wild Wings.
In 2017, Marcato won a long proxy fight against the company that ended with the CEO’s departure. Other high-profile targets of the hedge fund have included Rayonier Advanced Materials Inc (NYSE: RYAM), Deckers Outdoor Corp (NYSE: DECK), and Sothebys (NYSE: BID).
Marcato said it will be voting against the deal next month and proposed two paths for the company.
One is to remain independent “until there is greater visibility on the overall US legal and regulatory landscape.”
The other proposed solution is to conduct a formal and competitive sale process that would allow more companies to bid, including representatives of the cannabis, spirits, beer, beverage, tobacco and consumer industries, with Acreage choosing the best offer in cash.
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