Hexo Corp (NYSEAMERICAN:HEXO) stock swelled to a record $7.35 following approval of the proposed acquisition of Newstrike Brands Ltd (OTCMKTS:NWKRF) by the latter’s shareholders. Reportedly, the proposal received an overwhelming support of 97.6% although only 66% of the total votes were required to stamp the deal. However, as of this writing the shares had retreated to $6.99.
Awaiting Regulatory Approval
As part of the definitive agreement, HEXO would acquire Newstrike Brands’ issued and outstanding common shares in line with the provisions of the Ontario Business Corporation Act. While the deal is still pending approval by the Ontario Superior Court of Justice, the Competition Bureau has already proclaimed its support. The Competition Bureau through a no-action letter stated that it does not wish to challenge the proposed acquisition.
Upon meeting all the regulatory approvals, Newstrike Brands will operate as a 100%-owned subsidiary of HEXO. Newstrike will also cease to trade on TSX. The deal is erstimated at $CA263 million where Newstrike Brands’ shareholders will exchange their shares for 0.06332 of HEXO’s common stock
Increased Production Space
Among the benefits HEXO stands to reap from the deal includes increased production capacity where the company will reportedly produce nearly 150,000 kg of premium cannabis annually from the previous 108,000 kg. This is possible given HEXO will assume ownership of additional 470,000 sqft of production space on top of its existing 1.3 million sqft.
HEXO will also have an easy access to domestic markets. HEXO will be an automatic beneficiary of Newstrike’s distribution agreements established in 8 Canadian provinces of Quebec, Alberta, Ontario, British Colombia, Saskatchewan, Nova Scotia, Manitoba and Prince Edward Island.
To meet the growing demand of Cannabis products, HEXO will have Newstrike’s state of the art indoor production facility. HEXO will also have at its disposal specialized expertise for production that meet international exports standards.
Besides the voting for the acquisition, Newstrike shareholders supported the appointment of KPMG LLP as the company’s auditors and re-elected 6 directors including James Wilgar, Liam Scott, Nik Van Haeren, Stephen Smith, Peter Hwang and Brett Whalen.