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Research Note - The Valens Company Inc. (VLNS:TSX,$1.14|U/R) SNDL to Acquire VLNS in Stock Deal

This morning, The Valens Company announced that it has entered into an agreement to be acquired by SNDL Inc. (SNDL:NASDAQ). Each VLNS shareholder will receive 0.3334 of a SNDL share for each VLNS share held, implying C$1.26/share and a total consideration of C$138M assuming Friday’s close. This implies a 10% premium to the 30-day VWAP. The companies will combine to create a leading vertically integrated cannabis platform with 555,500 sf of cultivation and manufacturing space and 185 cannabis stores. The Company will operate as SNDL Inc. and Valens shareholders will retain 9.5% ownership in the proforma entity. SNDL will have an estimated $314M in cash and no debt upon closing, one of the best balance sheets among LPs. The strategic rationale for the transaction includes:

  • Creating a dominant vertically integrated LP through a diverse portfolio of brands, large retail footprint, low-cost biomass sourcing, premium indoor cultivation and low-cost manufacturing

  • Enhances branded product offering with low-cost in-house manufacturing capabilities. SNDL will expand its market share to 4.5% (Ranked 7th) and its 2.0 market share to 5.2% (Ranked 10th)

  • Increases optionality on biomass by pairing premium cultivation and low-cost procurement

  • Synergies through cost and operational efficiencies - $10M in annual cost savings and $15M in incremental EBITDA

  • Improved liquidity and better access to a large retail footprint through SNDL

Valens will host a special meeting by the end of November 2022 to conduct a shareholder vote and the transaction is expected to close in January 2023. Both SNDL and The Valens board of directors have unanimously approved the transaction, giving us confidence that the transaction will go through. The break fee on the transaction is $8M, payable to SNDL by VLNS. Valens also announced that its term loan has been refinanced and upsized with an additional $14.3M of incremental capital (increasing the principal to $60M). We are moving our rating on VLNS to Under Review until the acquisition closes.

20220822 - M Partners - VLNS - SNDL Acquisition
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