Invictus MD Strategies (GENE.V) and GTEC Holdings (GTEC.C) call off merger as market evolves

In ‘yeah that kind of makes sense‘ news:


Pursuant to the terms of a non-binding letter of intent entered into with Invictus MD Strategies Inc., as announced on Nov. 16, 2018, the parties have mutually agreed to terminate the LOI and not proceed with the merger.

Back in mid-November, when cannabis companies were worth a lot more than they are currently, it appeared the stablemate groups (folks from GTEC used to work for Invictus) would make a nice baby together. Alas, valuations have gone weird, which would have at the least required a reworking of the original deal had it gone forward.

Nov. 16, 2018:

Invictus MD Strategies Corp. has entered into a non-binding letter of intent with GTEC Holdings Ltd. for the acquisition by Invictus of all of the issued and outstanding shares in the capital of GTEC in an all-share transaction valued at approximately $100-million, forming Western Canada’s largest indoor vertically integrated cannabis companies.

GTEC’s market cap today is $51 million.

Invictus has also fallen in share price since the announcement of the deal, but to a lesser extent. It’s market cap today is $140m.

Both sides are chipper in the wake of the cancellation.

GTEC and Invictus maintain a strong working relationship based on their previously announced definitive agreement dated August 30, 2018 whereby:

GTEC entered into a $2m convertible loan facility with Invictus, at an interest rate of prime plus 5%. The loan facility is convertible at $1.50 per common share of GTEC and is due on the date that is two years following the date of the first draw. As of the date hereof, GTEC has drawn-down on the facility.

As additional consideration, GTEC has provided Invictus with a right of first refusal to fill up to 30% of any cannabis purchase order domestically and internationally (whether for flower or oil) that GTEC, or its wholly-owned subsidiaries are seeking to purchase from third party Licensed Producers for a period of two years.

I’d share the Invictus side of the news, but it’s almost word for word the same.

Both companies have several other deals they’re in the middle of, with Invictus moving into hemp and GTEC retail stores, so the decision to chill makes sense and allows them to take advantage of some soft valuations out there.

While some holders of both stocks may react poorly to the news Wednesday morning, the general consensus was the original deal was a win-win, so it’s unlikely either company will commiserate too hard over a reset.

— Chris Parry

FULL DISCLOSURE: Both GTEC and Invictus are Equity.Guru client companies and the author owns stock in GTEC.

Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

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