The planned merger continues to make strategic sense and the combined company could eventually look attractive to consumer packaged goods companies, and could attract a U.S. suitor before the end of cannabis prohibition, he wrote.
The combined company will have close to two times the size of Canopy Growth Corp.'s (WEED.T) share of the Canadian recreational cannabis market, and offers 51% upside for Aphria shares and about 4% for Tilray, he wrote.
"Thus, using TLRY's closing price of US$29 on 2/12, this would mean APHAshares would be worth C$31," said Zuanic. Cantor is not expecting the deal terms to be renegotiated, but rather views the gap as a result of recent volatility in Canadian cannabis stocks with Tilray the most liquid given its Nasdaq listing.
"We would put the likelihood of other bidders emerging at less than5% (not for tiny TLRY on its own) and renegotiated terms at less than 20% (we do not think TLRY has much bargaining power)," said the note.
Aphria shares were up 8.4% premarket and have gained 293% in the last 12 months. Tilray's stock was up 6.4% and has gained 67% in the last 12 months.
The Cannabis ETF (THCX), up 3.4% premarket, has gained 94% in the same time frame, while the S&P 500 has gained 16%.