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Home > Region > Canada > Canadian M&A Roundup Nov 17, 2017 – Weyburn/Cenovus, CanniMed Therapeutics, Care Investment Trust, General Growth Properties

Canadian M&A Roundup Nov 17, 2017 – Weyburn/Cenovus, CanniMed Therapeutics, Care Investment Trust, General Growth Properties

Our previous Canadian Mergers & Acquisitions roundups can be found here. Our previous global M&A roundups can be found here.

Target: Weyburn Unit and Minor Assets, Cenovus Energy Inc.

  • Industry: Energy
  • Acquirer: Whitecap Resources Inc.
  • Target: Weyburn Unit and Minor Assets in southeast Saskatchewan, Cenovus Energy Inc.
  • Size: CAD 940 million
  • Consideration: 100% Cash
  • Source of Funds: Debt, Equity
  • Sell Side Advisors: TD Securities
  • Buy Side Advisor: National Bank Financial
  • Legal Advisors: Not Disclosed
  • Expected Close: December 14, 2017

On November 13th, 2017, it was announced that Whitecap Resources (TSX:WCP) would acquire a 62.1% working interest stake in Cenovus Energy’s (TSX:CVE) Weyburn Unit asset as well as 200 BOE/d of production from minor assets in southeast Saskatchewan. Total consideration for this acquisition is CAD 940 million funded with a bought deal equity financing of approximately CAD 330 million ($8.80 per subscription) and the remainder in debt.

The Weyburn Unit asset has long been considered a prized oilfield in Saskatchewan with one of the lowest decline rates thanks to innovative carbon dioxide oil recovery methods. Whitecap gains approximately 14,600 BOE/d from Weyburn with 200 BOE/d from the minor assets.

Under the assumption of a $31.86/BOE operating netback, Whitecap estimates that they can bring production in the Weyburn Unit up to 17,700 BOE/d – translating into CAD 459 million in free cash flow. This complements their strategy of increasing presence in Saskatchewan as other major players are diversifying away from that geography.

This sale marks the third large divestiture by Cenovus in recent history, alongside the Pelican Lake and Palliser and Suffield asset sales. The trifecta of sales is intended to retire the debt Cenvous incurred from the ConocoPhillips Asset purchase, improving their struggling net debt to adjusted EBITDA ratio.

Target: CanniMed Therapeutics Inc.

  • Industry: Healthcare
  • Acquirer: Aurora Cannibis Inc. (TSX:ACB)
  • Target: CanniMed Therapeutics Inc. (TSX:CMED)
  • Size: CAD 551 million
  • Consideration: 100% Equity
  • Source of Funds: Equity
  • Sell Side Advisor: Not Disclosed
  • Buy Side Advisor: Not Disclosed
  • Legal Advisors: Not Disclosed
  • Expected Close: Not Disclosed

On November 13, 2017, Aurora Cannibis Inc. (TSX:ACB) (“Aurora”) submitted a proposal to acquire CanniMed Therapeutics Inc. (TSX:CMED) (“CanniMed”) for approximately CAD 550 million in an all-equity deal, valuing each CanniMed share at CAD 24. This gives CanniMed an implied EV of CAD 556.62 million and an implied EV/LTM Total Revenues of 37.0x.

CanniMed is a plant biopharma specializing in medical marijuana. Based out of Saskatoon, the firm has one of the country’s leading plant biotechnology research and product development programs.

The acquisition would boost Aurora’s market cap to over CAD 3 billion and rank it as Canada’s second largest medical marijuana company. They are more focused on cannabis oil which has healthier margins than dry marijuana. This acquisition is part of an industry wide trend of consolidation as the medical marijuana market has exploded in growth over the past couple of years.

News of the acquisition sent CanniMed shares up 18% to a peak of $6.78 and leveling out at $5.52 by the last close. Similarly, shares in Aurora went from $14.84 to $21.00 before easing off at $19.22 by the last close.

Target: Care Investment Trust LLC

  • IndustryHealthcare
  • Acquirer: Mainstreet Health Holdings, LP (TSX:HLP-U)
  • Target: Care Investment Trust LLC
  • Size: USD 425 million
  • Consideration: 40% Equity, 60% Debt
  • Source of Funds: Equity, Debt
  • Sell Side Advisors: Cantor Fitzgerald
  • Buy Side Advisor: BMO Capital Markets
  • Legal Advisors: Goodmans LLP, Morrison Foerster LLP
  • Expected Close: H1 2018

On November 16, 2017, Mainstreet Health Holdings, LP (TSX:HLP-U) (“Mainstreet”) entered into a purchase agreement to acquire Care Investment Trust LLC (“CareIT”) from Tiptree Operating Company, LLC (NasdaqCM:TIPT) (“Tiptree”) for an aggregate USD 425 million in consideration. Tiptree will receive 16.8 million Mainstreet common shares at USD 9.75 per share. The rest of the consideration will be provided through mortgage financing at a weighted average interest rate of approximately 4.7% and a term of approximately 4.9 years.

Tiptree is a diversified holdings company that owns CareIT which in turn holds a portfolio of senior homes across the United States. They have 42 senior homes and care properties which support 3718 beds. It is also important to note here that approximately 80% of the beds are for private care – a sector with aggressive top lines and lucrative margins. This represents an approximate doubling of Mainstreet’s portfolio – increasing their property count from 38 to 80 at deal close.

This acquisition helps diversify the geography distribution of Mainstreet’s portfolio by adding operations in 8 more states. It also serves as a strong platform for Mainstreet to penetrate the private care market. At the close of the transaction, Tiptree will own approximately 34% of all Mainstreet’s outstanding common shares.

Market sentiment has been positive. News of the deal gave Mainstreet’s share price a 12% boost to close at $9.04. Moving forward, Mainstreet will change their name to Invesque Inc. for brand recognition purposes.

Target: GGP Inc.

  • IndustryReal Estate
  • Acquirer: Brookfield Property Partners LP (NYSE:BPY)
  • Target: GGP Inc. (NYSE:GGP)
  • Size: USD 14.3 billion
  • Consideration: Cash, Equity
  • Source of Funds: Cash
  • Sell Side Advisors: Citigroup Global Markets
  • Buy Side Advisor: Not Disclosed
  • Legal Advisors: Sullivan Cromwell LLP
  • Expected Close: Not Disclosed

On November 11, 2017, Brookfield Property Partners LP (NYSE:BPY) (“BPY”) made a non-binding proposal to acquire the remaining 65.4% stake in GGP Inc. (NYSE:GGP) (“GGP”) for USD 14.3 billion. Shareholders of GGP have the choice to take USD 23 in cash per share or 0.9656 of a BPY share for each GGP share. This transaction will be immediately accretive for BPY.

BPY is the real estate arm of Brookfield Asset Management, one of the largest alternative asset managers with USD 250 billion AUM. The firm has a widely diversified portfolio which already included a 34.6% stake in GGP.

GGP owns approximately 130 properties primarily in the US, with most of them housing high end malls or retailers. This deal gives GGP an implied EV of USD 35 billion with an implied EV/LTM EBITDA of 20.2x.

It is interesting to note that during BPY’s earnings call at the end of October, the CFO, Bryan Davis, priced GGP at $29 per share in their IFRS NAV model. An offer then of $23 is a significant discount to their valuation of their current 34.6% stake in GGP. The news propelled shares in GGP up almost 25% from $19.03 to settle at $23.65. A deal of this magnitude aggressively discounting quality property shares could be of continuing interest to analysts in the sector, and perhaps be an indicator of the declining health of the retail space.

To better understand our M&A write-ups, please refer to the following:

Mergers & Acquisitions
Typical M&A Process Walkthrough
Types of M&A Auctions
Cash or Stock Consideration for M&A
Accretion/Dilution Part I: EPS, Earnings Yield & All-Stock Transactions

Accretion/Dilution Part II: Math and Breakeven Premiums

Accretion/Dilution Part III: Using Debt for Acquisitions
Accretion/Dilution Part IV: Synergies & Sources of Funds

Will is an economics and accounting student from UBC. He is currently a corporate finance intern at Dassault Systemes and has previously worked in equity research for Canalyst. Outside of school, he is an alpine ski racer in the winter and a triathlete in the summer.

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