How does the deal benefit Tilray stock?
The agreement between the two Canadian LPs will see Tilray acquire over $200 million of Hexo Corp’s senior secured convertible notes that it can convert into roughly 37% of the latter’s outstanding common shares.
The initial conversion price, as per the press release, will be 90 Canadian cents. Analyst Matt Bottomley wrote:
The conversion option enables Tilray to participate in longer-term equity upside should Hexo successfully implement its ‘Path Forward’ plan, while mitigating downside risk given the secured nature of the notes.
Bottomley sees an upside to $9.0 a share in Tilray that represents a 75% gain in the stock price from here.
Why is Bottomley bullish on Hexo Corp?
The analyst’s speculative buy rating on Hexo Corp comes with a price target of C$1.25 a share – also a 75% upside from where the stock is trading at the time of writing. Previously, he had a PT of C$1.0 a share.
Bottomley expects the three-year extension on the secured notes and Tilray as a commercial partner to help Hexo with its turnaround objectives. The sharp sell-off in both stocks was among other reasons why he’s bullish.
Hexo Corp noted a 29% increase in revenue in its latest reported quarter.