Hedge fund Marcato will fight against Acreage's sale to Canopy Growth, and says the landmark deal is 'lopsided' in Canopy's favor
- Activist hedge fund Marcato Capital Management says it will vote against marijuana retailer Acreage Holdings' landmark sale to Canopy Growth.
- Canopy Growth paid $300 million in April for the right to buy Acreage Holdings pending the federal legalization of marijuana in the US.
- The shareholder vote is expected to happen in June.
An activist hedge fund that owns a significant amount of shares in US marijuana retailer Acreage Holdings is opposing the company's landmark sale to Canadian marijuana retailer Canopy Growth.
San Francisco-based Marcato Capital Management, which owns 2.7% of Acreage's shares, said in a Monday letter it would fight against the deal, calling it "lopsided" in Canopy's favor. The letter was signed by Mick Mcguire, Marcato's founder and managing partner.
"The structure and consideration offered in this proposed transaction simply does not create value for Acreage shareholders," the letter said.
Marcato said it will vote against the deal in June and would prefer Acreage to remain independent. If Acreage's board insists on selling the company or pursuing a strategic tie-up with a major cannabis, alcohol, tobacco, or other consumer company, then Marcato said it would prefer to hire an investment bank to run a formal auction.
Specifically, Marcato said the transaction value of $3.4 billion is "substantially lower" than the fair value of Acreage, noting that Acreage's shares have slipped 6% since the day before the deal was announced and Canopy's have increased 15% over the same period.
"Shareholders of both companies appear to share Marcato's view that this is a great deal for Canopy and a terrible deal for Acreage," the letter said. "Canopy stock for Acreage stock is simply a bad deal for Acreage shareholders."
Marcato also called out the investment bank Canaccord Genuity's fairness opinion on the transaction. Canaccord analysts valued Acreage's stock at $27.48, four months after initiating coverage of the company at $35 per share.
Acreage spokesperson Howard Schacter told Business Insider that the company is "very confident" this deal will get done.
Marcato's opposition to the deal is "one shareholder's opinion," said Schacter. "It's inconsistent with the opinions of the majority of shareholders we've spoken to since the deal was announced."
Canopy announced in April it had entered into a conditional agreement to purchase Acreage for $3.4 billion conditional on the US federal legalization of marijuana. Acreage shareholders will receive an immediate $300 million payment in cash, pending a shareholder vote in June, with the rest of the balance coming if, or when, marijuana is legalized in the US.
The deal will be terminated in seven years if a federally legal pathway doesn't emerge. It's not clear what would happen to the $300 million that Canopy Growth paid up front if the deal doesn't go through.
The deal's complex structure is due to the shifting regulations around marijuana in the US. While marijuana is legal for adults in some form in 33 states, it remains federally illegal. Acreage CEO Kevin Murphy wrote a letter to shareholders earlier this month in an attempt to clear up what some say is the deal's confusing structure, as reported by The Globe and Mail.
Acreage plans to release a takeover circular in the next two-to-three weeks to reveal fresh details of the negotiations between the two companies.
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