Peltz will “work collaboratively and strategically to explore potential partnerships that would be the optimal strategic fit for successful entry into each of Auroras contemplated market segments,” Aurora said in a press release.
Aurora shares closed up 13.94 percent Wednesday following the release, its best day of trading since September. The company added that it has granted Peltz options to purchase 19.96 million common Aurora shares at a price of 10.34 Canadian dollars ($7.74). If he exercised the options, he would be the companys second-largest shareholder.
Video: Melius Research: Nelson Peltz signing on to Aurora Cannabis is a good move
“I believe Aurora has a solid execution track record, is strongly differentiated from its peers, has achieved integration throughout the value chain and is poised to go to the next level across a range of industry verticals,” Peltz said in the release.
“I also believe that Canadian licensed producers, and Aurora in particular, are well positioned to lead in the development of the international cannabis industry as regulations evolve, with a strong, globally replicable operating model.”
The addition of Peltz to the Aurora team represents one of the largest endorsements of the nascent cannabis industry.
Peltz, who founded and serves as CEO of New York-based Trian Partners, has over the decades commanded respect across Wall Street for his investing prowess and ability to reshape companies. As an activist investor, Peltz and Trian Partners take stakes in public companies they believe are undervalued and push management to make changes over several years.
Peltzs ideas align with Booths. As the hedge fund maven explained, “I believe Aurora has a solid execution track record, is strongly differentiated from its peers, has achieved integration throughout the value chain, and is poised to go to the next level across a range of industry verticals.” The billionaire specifically pointed to “potential engagement with mature players in consumer and other market segments” as part of his future work.
But Peltz will also prove a valuable addition to Aurora for his deep knowledge of the consumer goods industry, where hes tended to focus his investments. Current investments for the multibillion-dollar fund include a $3.6 billion stake in Procter & Gamble, an $884 million stake in packaged foods giant Mondelez and a longtime, $471 million investment in Wendys.
Peltz has extensive experience in the food business, and that has direct implications for Aurora. Many cannabis producers are looking closely at derivative products like edibles and cannabis-infused beverages, and Peltzs familiarity with the work involved in setting up the internal assets and logistics necessary to be successful in that area should be helpful in Auroras expansion.
Trian also held shares in PepsiCo until 2016, when the activist investor ultimately dissolved its $2 billion stake after three years of deliberations with management.
“We see a number of potential of growth areas, certainly consumer packaged goods,” Michael Singer, Auroras executive chairman, said Wednesday on CNBCs “Squawk Box.” “The beverage industry, cosmetics, wellness; we see pharmaceuticals now starting to show interest in our space. There are a number of what we call market segments that we expect to operate in with one or many of these potential partners.”
Marijuana stocks have soared to start 2019, and cannabis investors are looking at the biggest companies in the budding space as having huge potential for further growth. Aurora Cannabis (NYSE:ACB) is one of the best-known companies in the business, with unrivaled efforts to build out industry-leading growing capacity.
The addition of the high-profile advisor increase the odds of additional strategic partnerships and is sufficient reason to upgrade Auroras stock rating to buy, GMP Securities analyst Martin Landry told clients Wednesday. The analyst nearly tripled his price target on the company to CA$15 from CA$5.50.
Like most activist hedge fund leaders, Peltz has had a mixed track record with some high-profile wins and other losses. Aurora shareholders have high hopes for the billionaires strategic advice, but that doesnt make it a sure thing that theyll reap the rewards.
“Trian has been involved with a number of consumer packaged goods companies such as PepsiCo, Dr Pepper Snapple, Procter & Gamble, Kraft Foods, Heinz, Mondelez, among others,” Landry wrote. “We believe he could be instrumental in facilitating discussions with large consumer packaged goods companies.”
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Founded in 2006 by CEO Terry Booth, Edmonton, Alberta-based Aurora is one of the worlds largest cannabis producers. Second in market capitalization only to Ontario-based Canopy Growth, Aurora has built revenues and earnings at a dizzying pace in recent years as more jurisdictions approve the adult use of recreational marijuana.
Last month, the company said net sales grew by 363 percent on a year-over-year basis and added that it increased kilograms sold in its second fiscal quarter to 6,999, up 162 percent from a year earlier.
But for Aurora and its peers, the addition of a renowned investor — or a celebrity like Martha Stewart, who recently partnered with Canopy Growth — will help continue to normalize an industry long pursued by global law enforcement.
“Nelson also takes a long-term view of value creation to benefit all stakeholders,” Booth said Wednesday. “We look forward to working with Nelson to further extend our global cannabis industry leadership by aligning Aurora with each of the major market segments cannabis is set to impact.”
Aurora shares are up more than 82 percent in 2019 and 25 percent in the past month, buoyed after leading cannabis analyst Vivien Azer initiated coverage on the stock with the equivalent of a buy rating.
“Aurora is well positioned to benefit in the early innings of the Canadian adult use market, given its impressive 20 percent market share,” the Cowen analyst wrote earlier this month. “The companys large cultivation footprint, capable of producing over 575,000 kilograms, provides Aurora with the necessary infrastructure to weather early storms in adult use.”
On Oct. 17, Canada became the first Group of Seven country to allow recreational use of pot. Marijuana remains illegal on a federal level in the United States, but 10 states and the District of Columbia have allowed its use for recreational purposes.
Aurora stock trades under the ticker ACB on both the New York Stock Exchange and the Toronto Stock Exchange.
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Aurora Cannabis (ticker: ACB) stock has never enjoyed the steep valuation of its rival Canadian pot producers Canopy Growth (CGC) and Tilray (TLRY). That will change, after this mornings announcement that activist Nelson Peltz joined Aurora as Strategic Advisor. The news sent Aurora stock up 11% in premarket trading to 8.80.
The back story. Edmonton, Alberta-based Aurora has accumulated Buy ratings lately from analysts who note its 20% market share of Canadas recreational pot sales and efficient production. Cowens Vivien Azerlaunched coverage last week, with a price target equal to $10.50. Jefferies analyst Owen Bennett noted that Aurora stock trades at a lower multiple of sales and projected cash flow than Tilray or Canopy stock.
Whats New: Peltz will work with Aurora to explore potential partnerships that would be the optimal strategic fit for successful entry into each of Auroras contemplated market segments and advise on its global expansion. In the past, the investor has shaken up consumer packaged goods companies such as Procter & Gamble (PG), Kraft Heinz (KHC) predecessor H.J. Heinz, and Mondelez International (MDLZ)—all in the path that cannabis companies want to follow, as weed becomes a mainstream product like alcoholic beverages.
For his efforts, Peltz will get options to purchase 20 million shares of Aurora at a price of 10.34 Canadian dollars (equivalent to US$7.75) over a four-year schedule—with accelerated vesting if certain deals close or Aurora stock reaches C$31.
Looking Ahead: While Auroras done well at producing cannabis, it has lagged peers in nabbing deals with big-name partners in the food and beverage industries. That will change, as it gets by with a little help from its friend.