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Summary
- Canadian cannabis producer HEXO Corp (TSX:HEXO) is now all set to acquire peer Zenabis Global Inc (TSX:ZENA).
- Based on the two enterprises’ recent financials, the combined entity is also expected to make it to the list of top three recreational pot makers in Canada.
- HEXO stocks gained about 22 per cent to close trading at C$ 11.52 on Tuesday, while Zenabis stocks jumped over 16 per cent.
Barely two months after the Aphria-Tilray merger news rocked the stock markets in December, Canadian cannabis producer HEXO Corp (TSX:HEXO) is now all set to acquire peer Zenabis Global Inc (TSX:ZENA). The move, HEXO pointed in its official release on Tuesday, February 16, will help expand its business in the European medical marijuana market.
Based on the two enterprises’ recent financials, the combined entity is also expected to make it to the list of top three recreational pot makers in Canada.
HEXO stocks gained about 22 per cent to close trading at C$ 11.52 on Tuesday, while Zenabis stocks jumped over 16 per cent.
Let’s delves into the details of the HEXO and Zenabis deal.
HEXO Corp-Zenabis Global Merger – Key Highlights
HEXO has said that it will be purchasing all of Zenabis’ shares in a transaction valued at C$ 235 million as a part of the definitive arrangement agreement signed by the two companies. The deal dictates that shareholders of Zenabis stocks, in exchange of each of these, will be entitled to about 0.01772 of a HEXO share.
©Kalkine Group 2021
The merged entity is expected to realize yearly synergies of around C$ 20 million within a year of closing the deal. This, HEXO believes, could be achieved via cost of goods reductions, added capacity utilization and savings sliced from the selling, general and administrative (SG&A) expense.
If and when the transaction successfully goes through, HEXO’s licensed capacity of cannabis production will expand by approximately 111,200 kg on a yearly basis.
The merger will also bring into HEXO’s kitty two indoor facilities of about 635,000 square feet and a greenhouse of 2.1 million square feet.
The proposed merger deal comes after both the companies endured significant operational setbacks and losses in the wake of the pandemic. HEXO, however, accumulated a record high gross revenue of C$ 41.3 million in the Q1 FY21 ending on 31 October 2020.
