Aphria Rises After Board Clears Asset Deal, Three Directors Exit

(Bloomberg) -- Aphria Inc. paid an “acceptable” amount for Latin American assets that were the subject of a short-seller attack, but certain directors had conflicting interests in the deal that weren’t fully disclosed to the board, according to a special committee report released Friday.

The shares rose as much as 9 percent in Toronto to their highest intraday since Feb. 6. The stock has gained more than 60 percent so far this year amid a hostile takeover battle with Green Growth Brands Inc.

John Cervini, a co-founder of Aphria and its vice president of infrastructure and technology, will step down as a director effective March 1, but will remain in a “non-executive operational capacity,” the company said Friday. Chief Executive Officer Vic Neufeld and co-founder Cole Cacciavillani, who announced their plan to transition out of executive roles last month, will also step down as directors and retire effective March 1. Aphria had previously said they would remain on the board.

Aphria appointed the special committee of independent directors to review allegations made by Quintessential Capital Management and Hindenburg Research in December. The short sellers asserted that Aphria overpaid for “largely worthless” assets in Jamaica, Colombia and Argentina when it acquired LATAM Holdings Inc. in September for C$298 million ($225 million).

Chairman Irwin Simon will be interim CEO until the board names a permanent replacement for Neufeld.

The special committee conducted “comprehensive, in-person site reviews” and found that the assets acquired in the LATAM deal exist and continue to be developed according to the company’s business plan. It also found that the consideration paid for the assets was “within an acceptable range as compared to similar acquisitions by competitors,” although it was “near the top of the range of observable valuation metrics.”

The short sellers had questioned the existence of some of the assets, calling the acquisitions part of a “shell game” to funnel money to insiders at an inflated price.

As a result of its finding that certain directors had conflicting interests that weren’t fully disclosed, the special committee made five recommendations related to ensuring board independence, improving corporate governance and avoiding conflicts of interest. The board has agreed to adopt these changes.

“Aphria is committed to the highest levels of governance and transparency, with a board that, upon the appointment of a permanent CEO, will be fully composed of independent directors, from a majority previously,” Simon said in a statement.

To contact the reporter on this story: Kristine Owram in Toronto at [email protected]

To contact the editors responsible for this story: Courtney Dentch at [email protected], Catherine Larkin, Steven Fromm

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