Under the agreement, SNDL will acquire all of the issued and outstanding common shares of Valens, other than those owned by SNDL and its subsidiaries. Valens' shareholders will receive for each share 0.3334 of a common share of SNDL. Based on the Aug. 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 of the Valens shares on the Toronto Stock Exchange up to Aug. 19, 2022.
The transaction is set to close in January 2023.
"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 SNDL CEO Zach George. "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."
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.
The combined company will operate as SNDL Inc., and Valens shareholders will own approximately 9.5% of the pro forma entity.
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 said it will become one of the largest adult-use cannabis manufacturers and retailers. 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.
Furthermore, SNDL says combining its cannabis cultivation operations with Valens' biomass procurement capabilities will enhance its ability to offer a range of products to meet its customers and consumers desires.
The combination of SNDL and Valens is expected to deliver more than $10 million of annual cost synergies. Together with incremental revenues from 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.
"We are thrilled to bring together two best-in-class cannabis companies that have extremely complementary assets to create a true market leader, said Tyler Robson, CEO of The Valens Company. “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. 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.