Tilray shares jump on deal to take control of biggest holder

The deal removes any concern that Privateer could flood the market with Tilray stock, and gives Privateer's investors a tax-free way to benefit from its stake

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Tilray CEO Brendan Kennedy at the company's European production site in Portugal. Patricia de Melo Moreira/AFP/Getty Images

Tilray Inc.’s stock jumped after its largest shareholder agreed to merge with the cannabis company and extend the lockup on its stake for two years except under certain strategic circumstances.

Privateer Holdings Inc. has signed a non-binding letter of intent that will see it merge with Tilray. For the first year after the merger closes, the 75 million shares currently held by Privateer will only be released to institutional investors or large companies looking to make a strategic investment in the industry, and then only at the discretion of Tilray. In the second year, the remaining shares will be subject to a staggered release.

The deal removes any concern that Privateer could flood the market with Tilray stock, and gives Privateer’s investors a tax-free way to benefit from its stake in the US$3.8 billion cannabis firm, the companies said Monday. No money will change hands in the deal. Tilray’s stock gained as much as 15 per cent as of 10:18 a.m. in New York Monday for its best intraday gain since January.

“This transaction gives us more control over the public float and allows us to put it with long-term investors or strategic investors as opposed to just having these shares hit the market,” Tilray Chief Financial Officer Mark Castaneda said in a phone interview.

Castaneda expects companies from the pharmaceutical, alcohol, tobacco and consumer packaged goods industries to step up their investments in cannabis over the next 12 to 18 months. Tilray has already established several partnerships with outside firms, including Swiss drug giant Novartis AG and Budweiser brewer Anheuser-Busch InBev NV.

“So if AB InBev wanted to make a large investment we now have a better way to handle that investment with primary and secondary shares, and there could likely be others like CPG companies or tobacco companies or pharmaceutical companies that invest directly into Tilray,” he said.

Privateer incubated and financed Nanaimo, British Columbia-based Tilray as one of its wholly owned operating subsidiaries before it went public in 2018. Tilray Chief Executive Officer Brendan Kennedy co-founded Privateer and is its executive chairman.
The merger and subsequent lockup must be approved by the shareholders of both Privateer and Tilray.

Bloomberg.com

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