11/24/2017 09:08 EST | Updated 11/24/2017 16:41 EST

Aurora takeover bid 'makes no sense,' based on inflated share price: CanniMed

TORONTO — CanniMed Therapeutics Inc. fired back at Aurora Cannabis Inc. — which formally launched its hostile takeover bid Friday — saying the Vancouver-headquartered marijuana producer's management "has not demonstrated an ability to execute competently" and its all-stock offer is based on an "inflated Aurora share price."

Aurora (TSX:ACB) formally tabled its hostile takeover bid for CanniMed (TSX:CMED) on Friday, valued at $24 per share, with the condition that the medical marijuana producer cancel its own planned acquisition of the Tragically Hip-backed marijuana company Newstrike Resources Ltd. (TSXV:HIP).

In response, CanniMed CEO Brent Zettl said there is "serious concern" that Aurora's share price will drop, but its combination with Newstrike is "extremely well positioned to deliver significant shareholder value going forward."

"The only certainty for CanniMed shareholders is in the attractive and accretive Newstrike acquisition before them," Zettl said in a statement. "We can understand why a deal with CanniMed makes sense for Aurora but it makes no sense for our shareholders."

Aurora said in a statement Friday that it placed a newspaper ad for its offer to acquire all issued and outstanding shares for up to $24, and a takeover bid circular will be mailed to CanniMed's shareholders.

"We believe that we will be able to accelerate CanniMed's growth more effectively than current management, and so we invite and encourage CanniMed's shareholders to tender their shares to the bid," said Aurora CEO Terry Booth in a news release.

Aurora also outlined the conditions of its offer, including that CanniMed's recently proposed acquisition of Newstrike not proceed and be terminated.

Aurora says its offer will remain on the table until March 9, 2018. The acquisition would see Aurora serve 40,000 active registered patients, compared to 63,000 at Canada's largest marijuana company, Canopy Growth Corp. (TSX:WEED).

This comes after Aurora first announced on Nov. 14 it submitted its takeover proposal to CanniMed's board, and that it had agreements with shareholders representing 38 per cent of CanniMed's outstanding shares to support its bid. It gave CanniMed until Nov. 17 to respond to its bid, which offers shareholders a 57 per cent premium.

On Nov. 15, CanniMed acknowledged Aurora's announcement but said it did not receive a formal offer. CanniMed also added it was in advanced discussions to acquire Newstrike. On Nov. 17 CanniMed announced it had reached a definitive agreement to acquire Newstrike.

By Nov. 20, Aurora said it did not get a response from CanniMed and planned to go hostile with its offer.

CanniMed said Friday the special committee it recently formed, in anticipation of a formal offer from Aurora, is reviewing the bid.

Shares of Aurora Cannabis were up roughly 6.5 per cent in early afternoon trading to $7.18 on the Toronto Stock Exchange. That's up roughly 136 per cent since the beginning of the month.

Meanwhile, CanniMed shares were down less than one per cent to $20.80 and Newstrike's stock slipped nearly four per cent to $0.51 on Friday late-morning trading.

CanniMed's chief financial officer John Knowles said in a statement Friday that the company is concerned that Aurora "has enjoyed a recent and significant run up in value that does not appear to be based on any substantive decisions or value created by its management."

Aurora has been on a shopping spree, announcing the purchase of greenhouse design firm Larssen Ltd. on Thursday morning and Quebec-based medical marijuana applicant H2 Biopharma Inc. later Thursday evening.

After Aurora's latest $100 million financing announced earlier this month, there will be more acquisitions to come, said Beacon Securities analyst Vahan Ajamian.

"The company is on an M&A spree, and they still have $340 million of cash," he said. "They see great value in assets in Canada and internationally, and they're going to keep expanding to build an international behemoth."