Flowr to Acquire International Cannabis Leader Terrace Global for $63 Million
Highlights:
- Proposed transaction provides a 47% premium to Terrace Global’s current share price and a premium of 76% to the last Terrace Global financing at $0.125 per share.
- Share-based acquisition allows Terrace Global shareholders to continue to participate in upside of combined companies and benefit from enhanced liquidity and access to capital.
- Complimentary operations in Portugal and existing joint venture secures control over the entire cannabis value chain and leverages existing international partnerships and expertise.
- Flowr has secured support from approximately 38% of the shareholders of Terrace Global.
- Strong balance sheet with more than $31 million in combined cash and marketable securities to support growth. Significant debt reduction and improved credit covenants contemplated by the transaction as a result of a minimum Flowr 10% subordinated secured debenture conversion of approximately $11.9 million.
TORONTO, October 20, 2020–(BUSINESS WIRE)–Terrace Global Inc. (TSXV: TRCE) (“Terrace Global” or the “Company”) is pleased to announce it has entered into a definitive arrangement agreement (the “Agreement”) pursuant to which The Flowr Corporation (TSXV: FLWR) (“Flowr”) will acquire all of the issued and outstanding common shares in the capital of Terrace Global (the “Transaction”).
Under the terms of the Agreement, holders of Terrace Global common shares will receive 0.4973 of a common share of Flowr (“Flowr Shares”) for each Terrace Global common share held (“Terrace Global Shares”). Upon completion of the Transaction, existing Flowr and Terrace Global shareholders would own approximately 60.9% and 39.1% of the pro forma company, respectively, on a fully diluted in-the-money basis (including the conversion of $11.9 million of Flowr convertible debentures).
The exchange ratio implies a price of $0.22 per Terrace Global common share and a premium of approximately 47%, based on the thirty (30) day volume weighted average prices of Flowr Shares on the TSX Venture Exchange and the spot price of Terrace Global as of October 19, 2020.
Transaction Highlights
- Significant Premium Paid: The implied premium being paid by Flowr is approximately 47% based upon the closing price of the Terrace Global Shares on October 19, 2020 and a premium of approximately 76% to the last Terrace Global financing at $0.125 per share.
- Continued Participation in Expanded Platform for Future Growth in Canada and Europe: Terrace Global shareholders, through their ownership of Flowr Shares, will have the opportunity to participate in the growth of Flowr and will benefit from the enhanced growth prospects of the combined company. Flowr is a leading high-THC cultivator with a strong brand presence in Canada and also has a strong toehold position in the burgeoning European medical cannabis market.
- Terrace Shareholder Alignment with Flowr Shareholders: As part of the Transaction, all insiders of Flowr will be required to convert their 10% subordinated secured debentures into Flowr Shares, representing a conversion of at least $11.9 million principal amount of debentures. Flowr will also use commercially reasonable efforts to secure the full conversion of all of the issued and outstanding convertible debentures in the aggregate principal amount of $21.6 million.
- Strengthening Vertically Integrated Global Cannabis Company: Flowr is a leading global cannabis company and market leader with its distinct Flowr brand. This transaction strengthens Flowr’s international presence and improves access to multiple demographic segments.
- Alignment with Strong Management Team: Terrace Global was created by a group of pioneers in the cannabis sector who have decades of international experience in the cannabis market and include the founders of MedReleaf Corp., ICC Labs Inc. and Bedrocan Cannabis Corp. Both Flowr and Terrace Global boast sector leading insider ownership. Terrace Global to have three nominees on the reconstituted board of directors of Flowr.
- Robust Financial Position: Flowr and Terrace Global currently have a combined $31 million in cash and marketable securities, which will be used to support brand building, outdoor grow operations, and pursue strategic opportunities and investments that maximize shareholder value.
- Concurrent Liability Management: As a condition precedent to the closing of the Transaction, Flowr will be required to negotiate more favourable terms with its senior creditors to improve its credit covenant package and it will also benefit from a basket for future subordinated secured debenture financing in the amount of at least $11.9 million. This will provide additional financial flexibility for Flowr going forward. The net result is that at closing of the Transaction, Flowr will have reduced its overall indebtedness by at least $11.9 million.
- Improved Capital Markets Profile: Flowr will be a leading licensed producer appealing to a broader shareholder base, with greater access to capital and improved trading liquidity.
- Accretive Synergies: The combined entity is estimated to realize annual synergies of approximately $2 million per year, allowing Flowr to operate more efficiently with a commitment to continued excellence.
Terrace Global and Flowr have enjoyed a collaborative and symbiotic working relationship and share similar philosophies, making this transaction a strong fit for us. With Flowr, we believe that we can realize our full potential and are excited to participate in the upside of Flowr.
Francisco Ortiz von Bismarck, Chief Executive Officer of Terrace Global
Combining our complimentary management expertise, and collaborative strengths will result in a combined entity that is poised for global growth.
Terms of the Transaction
The Transaction will be affected by way of a court approved plan of arrangement under the Business Corporations Act (Ontario) (the “Arrangement”). Under the terms of the Transaction, each shareholder of Terrace Global (“Terrace Global Shareholder”) will receive 0.4973 of a Flowr Share per Terrace Global Share, which implies a price per Terrace Global Share of $0.22 based on the thirty (30) day volume weighted average price (“VWAP”) of the Flowr Shares and the spot price of Terrace Global Shares on the TSX Venture Exchange (“TSXV”) as of October 19, 2020.
The Transaction is subject to the approval of the Ontario Superior Court of Justice (Commercial List). The Transaction will also require the approval at a special meeting of Terrace Global Shareholders (the “Terrace Global Special Meeting”) of not less than two-thirds (66 2/3%) of the votes validly cast by Terrace Global Shareholders, present in person or by proxy at the meeting, and, by a majority of the minority votes validly cast by Terrace Global Shareholders, present in person or by proxy at the meeting, as required pursuant to Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions.
All of the directors and senior officers of Terrace Global and other certain shareholders of the Company (who hold in the aggregate approximately 38% of the issued and outstanding Terrace Global Shares on a non-diluted basis) have entered into a support agreement with Flowr to, among other things, support the Transaction and vote their Terrace Global Shares in favour of the Transaction.
The Agreement provides for, among other things, the board of directors of Terrace Global being able to consider a superior proposal in certain circumstances. The Agreement also provides for the payment by Terrace Global of a termination fee of up to $3,000,000 in favour of Flowr in certain circumstances. In addition, the Agreement provides that, under certain circumstances, where the Transaction is not completed because of the failure of Flowr to obtain certain approvals or consents, Flowr would be required to reimburse Terrace Global’s expenses up to $500,000.
Concurrent Liability Management
As noted above, the Transaction is conditional upon: (i) the amendment of the existing indenture governing the 10% subordinated secured debentures issued by Flowr in the aggregate principal amount of $21.6 million to enable the early conversion of approximately $11.9 million of debentures held by insiders of Flowr; and (ii) certain amendments to the senior secured credit facility from a syndicate of lenders led by ATB Financial, including a future basket for the issuance of up to at least $11.9 million subordinated secured debentures on substantially similar terms to the existing debentures as well as the improvement of certain credit covenants.
Closing and Closing Conditions
The Transaction remains subject to certain other closing conditions including the receipt of certain approvals and the satisfaction of certain customary closing conditions. The parties do not anticipate requiring an approval of shareholders of Flowr to complete the Transaction.
The Board of Directors of Terrace Global (the “Terrace Global Board”) unanimously recommends that Terrace Global Shareholders vote in favour of the resolution to approve the Arrangement, which will be the subject of the Terrace Global Special Meeting expected to be held in the fourth quarter of 2020. The recommendation of the Terrace Global Board is supported by a fairness opinion from Hyperion Capital Inc. to the effect that, as of the date of the opinion, and subject to the assumptions, limitations and qualifications on which each such opinion is based, the consideration to be received by Terrace Global Shareholders pursuant to the Transaction is fair, from a financial point of view, to such shareholders.
It is currently expected that, subject to receipt of all regulatory, court, shareholder and other approvals, and the satisfaction or waiver of all conditions, the Transaction is expected to be completed in the fourth quarter of 2020.
Further information regarding the Transaction will be included in Terrace Global’s management information circular to be mailed to Terrace Global Shareholders in advance of the Terrace Global Special Meeting and in Terrace Global’s material change report in respect of the announcement of the Transaction, each of which will be filed with the Canadian securities regulators and will be available under Terrace Global’s profile at www.sedar.com.
Advisors and Counsel
Hyperion Capital Inc. is acting as the financial advisor to Terrace Global and has provided a fairness opinion to the Terrace Global Board. Wildeboer Dellelce LLP is acting as legal counsel to Terrace Global. Norton Rose Fulbright Canada LLP is acting as legal counsel to the Board of Directors of Terrace Global.
ATB Capital Markets Inc. is acting as the exclusive financial advisor to Flowr and has provided a fairness opinion to the Flowr Board. Fasken Martineau DuMoulin LLP is acting as legal counsel to Flowr.
About Terrace Global
Terrace Global is a Canadian company focused on the development and acquisition of international cannabis assets. Its single-minded goal is to unlock value in new jurisdictions. Terrace was created by a group of pioneers in the cannabis space who have come together to build a best in class portfolio of assets, across international markets. With decades of cross-continent relationships, the Terrace team is uniquely positioned to unlock value in new jurisdictions like no one else can. For more information about Terrace Global, please visit terraceglobal.ca.
About The Flowr Corporation
The Flowr Corporation is a Toronto-headquartered cannabis company with operations in Canada, Europe, and Australia. Its Canadian operating campus, located in Kelowna, BC, includes a purpose-built, GMP-designed indoor cultivation facility; an outdoor and greenhouse cultivation site; and a state-of-the-art R&D facility. From this campus, Flowr produces recreational and medicinal products. Internationally, Flowr intends to service the global medical cannabis market through its subsidiary Holigen, which has a license for cannabis cultivation in Portugal and operates GMP licensed facilities in both Portugal and Australia.
Flowr aims to support improving outcomes through responsible cannabis use and, as an established expert in cannabis cultivation, strives to be the brand of choice for consumers and patients seeking the highest-quality craftsmanship and product consistency across a portfolio of differentiated cannabis products.
For more information, please visit flowrcorp.com or follow Flowr on Twitter: @FlowrCanada and LinkedIn: The Flowr Corporation.
