SNDL Inc. has entered into an arrangement agreement to combine their businesses and create a leading vertically integrated cannabis platform. Pursuant to the terms of the Agreement, SNDL will acquire all of the issued and outstanding common shares of Valens, other than those owned by SNDL and its subsidiaries, by way of a statutory plan of arrangement. All financial information in this press release is reported in Canadian dollars unless otherwise indicated.
Under the terms of the Agreement, Valens' shareholders will receive, for each Valens Share, 0.3334 of a common share of SNDL. Based on the August 19, 2022, close of the SNDL shares on the Nasdaq Capital Market exchange, the consideration represents an implied value of $1.26 per Valens Share, for total consideration of approximately $138 million. The Implied Offer Price represents a premium of 10% based on a trailing 30-day volume-weighted average price ("VWAP") of the Valens Shares on the Toronto Stock Exchange (the "TSX") up to August 19, 2022. For more information on the announcement, an investor presentation can be found at www.sndl.com and www.thevalenscompany.com.
With 555,500 square feet of cultivation and manufacturing space and 185 cannabis stores under the Spiritleaf and Value Buds banners, the combined company will offer a complete portfolio of branded products to consumers in Canada through its own supply and distribution channels. With approximately $314 million in net cash and no debt, SNDL will continue to have one of the strongest balance sheets in the North American regulated cannabis industry. SNDL will also have the highest pro forma Canadian cannabis revenue on a last fiscal quarter annualized basis. The combined company will operate as SNDL Inc., and Valens shareholders will own approximately 9.5% of the pro forma entity.
Key transaction highlights
- Creates a dominant vertically integrated entity in Canada: Through the combination of a diverse portfolio of brands, an extensive retail footprint, low-cost biomass sourcing, premium indoor cultivation, and low-cost manufacturing facilities, SNDL will become one of the largest adult-use cannabis manufacturers and retailers. With its retail insight and financial strength, SNDL will be able to adapt quickly to emerging consumer trends.
- Enhances branded product offering with low-cost in-house manufacturing capabilities: By integrating Valens' product suite into its portfolio, SNDL will increase its overall cannabis market share to 4.5% and its 2.0 product formats market share to 5.2%, becoming a top 10 player in both categories. As a result of Valens' low-cost platform, SNDL will enhance its own product line while offering pricing flexibility to retail partners.
- Increases optionality on biomass by pairing premium cultivation with low-cost procurement: Combining SNDL's high-quality cannabis cultivation operations with Valens' low-cost biomass procurement capabilities will enhance SNDL's ability to offer a wide range of customized, innovative products to meet its customers and consumers desires.
- Synergies through cost rationalization and operational efficiencies: The combination of SNDL and Valens is expected to deliver more than $10 million of annual cost synergies. Together with incremental revenues from the greater distribution of Valens products, it is estimated that the Transaction will deliver upwards of $15 million of additional EBITDA on an annual run-rate basis through synergies and other strategic initiatives.
- Valens shareholders to participate in and help create the future of SNDL: Valens shareholders are to receive SNDL common shares in an all-stock transaction. Beyond improved liquidity and better access to a large retail footprint, SNDL's balance sheet strength provides a unique opportunity for Valens shareholders to participate in the creation of a leading vertically integrated Canadian cannabis company.
"This powerful combination will result in the creation of a dominant vertically integrated company, exceptionally well-suited to weather the current cannabis environment and become a leader in the Canadian regulated products sector," said Zach George, Chief Executive Officer of SNDL. "SNDL's existing consumer packaged cannabis business will be transformed by Valens' high-quality extraction, processing, and manufacturing capabilities and aligns well with our strategic vision to delight consumers with a full range of quality cannabis products and experiences. Our companies have been commercial partners since Canadian legalization. I am excited by the strong cultural fit between our teams and humbled by the opportunity to work with Valens' passionate and innovative leadership."
"We are thrilled to bring together two best-in-class cannabis companies that have extremely complementary assets to create a true market leader. Valens is one of the fastest growing branded cannabis companies in Canada with a focus on innovation and investing in low-cost automated manufacturing assets," said Tyler Robson, Chief Executive Officer of The Valens Company. "With SNDL's exceptional balance sheet and largest cannabis retail network in Canada, we look forward to taking Valens' brands to new heights and unlocking 2.0 products for the SNDL platform. We believe the pro forma company provides investors with attractive exposure not only to the highest revenue generating cannabis company in Canada trading well under its tangible book value but also a dominant platform that can become a global leader in cannabis."
Valens' secured non-revolving term loan has been refinanced and upsized with an additional $14.3 million of incremental capital, thereby increasing the principal amount of the Term Loan to $60 million.
For more information:
The Valens Company