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Creso Pharma takeover off the table

Creso Pharma Ltd (ASX: CPH) has today announced that its proposed acquisition by Canadian cannabis company PharmaCielo Ltd has been terminated by mutual agreement. The acquisition, which was to be implemented by scheme of arrangement, was terminated following receipt of a supplementary independent expert report which concluded the acquisition was not in the best interests of shareholders.

Shares in Creso Pharma Ltd remain suspended following the termination of the acquisition. 

Why was the acquisition terminated?

The acquisition was first announced in June when it was proposed Creso Pharma be acquired at 63 cents per share via scheme of arrangement. Creso Pharma shareholders were to receive 0.0775 PharmaCielo shares for every Creso Pharma share held, which represented a value of AU$0.63 based on the 3-day volume weighted average price of PharmaCielo shares. 

At the time, PharmaCielo shares were trading at CA$7.61 and PharmaCielo Ltd had a market capitalisation of CA$675 million. Since then shares in PharmaCielo have plunged to CA$3.67. It has been a difficult year for Creso Pharma, which has seen its share price plunge from highs of over 50 cents in July to 20 cents currently. 

The scheme was called off following receipt of a supplementary independent expert report, which found the scheme was neither fair nor reasonable and not in the best interests of members. The independent expert concluded that the scheme was not fair to Creso Pharma shareholders as the decline in the share price of PharmaCielo meant they would not receive fair value for their shares. 

The independent expert noted that if the scheme was not approved, Creso would be required to raise significant capital to repay loans from PharmaCielo and service working capital requirements. Nonetheless, the expert considered the disadvantages of a potential equity raising by Creso Pharma did not outweigh the loss of value to shareholders which would occur on implementation of the scheme. 

So what now?

With the acquisition off the table, Creso Pharma is left owing PharmaCielo CA$3.9 million, which must be repaid by the end of the month. Creso Pharma is pursuing various fundraising initiatives to allow it to repay the PharmaCielo loan and expects to be in a position to provide an update on these initiatives on 15 November. 

Creso Pharma reported cash and cash equivalents of $3.57 million as at 30 June, prior to the extension of the loan by PharmaCielo. Net assets at 30 June were $17.28 million.

Creso Pharma shares will remain suspended from trading until a further update is provided to the market, expected to be on 15 November. 

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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