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Two major ASX-listed medicinal cannabis companies could soon be under one roof after the board of CannPal Animal Therapeutics (ASX: CP1) agreed to a scrip-based buyout from AusCann Group (ASX: AC8).
If the deal goes ahead CannPal investors can expect 1.3 new AC8 shares for every CP1 share they hold, implying a 47.2 per cent premium to the last share price before both companies entered trading halts on Friday.
The acquisition, set to be worth around $17.5 million, would combine two groups that are still at the research stage of their journeys.
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AusCann is currently in the midst of an executive team transition and is betting on the benefits of its hard-shell CBD (cannabidiol) capsules, while CannPal has been involved in a commercialisation agreement for CSIRO microencapsulation technology since the beginning of the year aimed at treating animals.
Founded by Sydney Young Entrepreneur Award (Health & Fitness category) winner Layton Mills, CannPal has had its share of breakthroughs but like so many medicinal cannabis developers has seen its share price erode over the course of 2020.
"We're now essentially at the precipice with some of our lead product candidates, particularly our DermaCann product - the recent study we did in dogs with atopic dermatitis, that was really the last piece of the product dossier that's been in development for two or three years," Mills told Business News Australia this morning.
"We're now at the stage where we're talking with multiple top 10 leading animal health partners to commercialise that product in a number of different countries, which is really exciting."
The indicative value per share is less than CP1's trading price after the CSIRO deal, so why settle for the offer? Mills explained CannPal was now ready to commercialise its products but market environment hasn't been great recently.
"How can we accelerate our growth objectives? How can we accelerate commercialisation, and do so without having to dilute shareholdings? We believe we've got a lot of value in the R&D that we've completed in the last few years," he said.
Mills believes the AusCann tie-up will help CannPal achieve those objectives as shareholders will still have stock in the new company.
"Unfortunately companies in Australia - CannGroup's one, AusCann's another, we've obviously seen what's happened to Creso - these companies have to some extend been subject to some of that fluctuation," he said.
The CannPal founder is optimistic about the opportunities the deal could present, for example applying its R&D to the human health space which has some good regulatory tailwinds in markets such as the UK, Germany and parts of South America.
"There's absolutely opportunity for us to now leverage what we've done to provide AusCann some additional product candidates and together we can grow as a much stronger entity," he said.
AusCann believes the acquisition will help leverage research, technology and know-how for both human and animal health, and will give the combined group a strengthened financial position and economies of scale.
"The combined business is expected to have the financial resources and technical expertise to accelerate the growth, commercialisation and market penetration of its pipeline products in Australia and offshore," says AusCann chairman Max Johnston.
"The complementary nature of developing new health solutions for both human and animal and creating a much larger addressable market makes this combination a game changer for both companies.
"The combined resources position the new company well to take a leadership position within this new health industry sector."
CannPal chairman Geoff Starr says there is a great logic to the two companies teaming up with the potential to create new and stronger commercial pathways.
"The synergies around local and overseas market knowledge and research and development know-how will enable faster to market solutions. It represents a unique and compelling value proposition for both companies," he says.
CannPal's board unanimously recommends shareholders vote in favour of the scheme, with details for a meeting and timetable expected to be provided in January next year with a view to implementation in March.
CannPal's largest and founding shareholder Merchant Opportunities Fund, which holds 19.88 per cent of CannPal, has indicated its intention to vote in favour of the scheme.
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