A Combination Of Weak Q3 FY2019 Earnings And Hostile Takeover Drama Is Putting Pressure On The Aphria (TSX:APHA) Stock


On April 15 March, Aphria (TSX:APHA) released the earnings results for the third quarter fiscal 2019. Notably, the company posted $73.6 million in net revenue representing a 240% from the Q2 FY2019. Compared to FY2018, the net revenue was up 617%. Interestingly, the net revenue was not enough to overturn the negative sentiment generated by the $108.2 million net loss.

Aphria stock took a beating from the weak earnings results

For starters, the Q3 results are the first since Canada legalized cannabis. As such, investors were anticipating better performance. During the third quarter for FY2018, Aphria made $10.3 million in net revenues alongside $12.9 million profit. Therefore, the poor earnings numbers turned many investors 180 degrees from the stock. In the immediate aftermath of the earnings results, the stock tumbled 16%.

Source: Stockcharts.com

According to the company, much of the loss during Q3 FY2019 came about due to increased administrative expenses. Further, the firm carried out major engagements aimed at future growth and that too ate into revenue. Also, Aphria experienced higher overhead costs due to supply shortages in the packaging materials. The tight supply led to higher costs.

A hostile takeover at discounted price

To be sure, investors dumped the Aphria stock for two major reasons. One, the company was going through a dangerous period where Green Growth Brands made an attempt at hostile takeover. Investors were especially worried since the takeover bid grossly undervalued the Aphria stock. In one of its defenses against the hostile takeover, the firm noted that the GGB offering was below the NYSE price for Aphria.

In particular, GGB offered to exchange one Aphria share for 1.57 of its common stock. Interestingly, one GGB share was worth $5.9 at the time of the offer. On the other hand, one share of Aphria was trading at $11 at the time of the offer. As such, this is to say that the GGB offer was aiming to acquire Aphria at a 33% discount. The pursuit for Aphria turned hostile soon after the company rejected the takeover bid.

Aphria faces a strong future given the strategic moves it is making

However, GGB agreed with Aphria on modalities toward the cancellation of the hostile takeover bid. Notably, the agreement outlined that GGB would repurchase a little over 27 million shares of its common stock. In particular, the transaction was agreed to amount to an aggregate consideration of $89 million CAD. This implies a highly discounted price of $3.26 CAD for every share. The agreement further detailed that GGB would pay for the total consideration in secured promissory notes and cash.

Nonetheless, Aphria is making the right moves in terms of future growth strategy. To be sure, the company acquired a cultivation license which will allow its subsidiary, Aphria Germany, to cultivate cannabis in Germany.

Speaking following the development, Hendrik Knopp, Managing Director for the subsidiary said the license will allow the company to finalize the construction of its 8,000 sq. ft. cultivation facility. The company anticipates the facility to be operational by 2020, Knopp said.

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