Altria Buys 45 Percent of Cronos Group for C$2.4 billion

Altria Buys 45% of Cronos Group for C$2.4 billion

Provides Cronos Group with Added Capital and Complementary Expertise to Accelerate Its 

Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) today announced that it has entered into a subscription agreement with Altria Group, Inc. (NYSE: MO) pursuant to which Altria has agreed to make an approximately C$2.4 billionequity investment in Cronos Group on a private placement basis in exchange for common shares in the capital of the business. Altria will also receive Warrants of Cronos Group, that if fully exercised, would provide the Company with an additional about C$1.4 billion of profits. The Shares issuable to Altria pursuant to the Subscription Agreement will result in Altria holding an approximately 45% ownership interest in Cronos Group (calculated on a non-diluted foundation ), exercise of the Warrants would result in incremental ownership of 10% for a total possible ownership position of 55%. This strategic partnership provides regulatory experience to position the Company to compete, scale and direct the rapidly growing cannabis industry, product development and commercialization capabilities, and Cronos Group with additional financial resources.

“Altria is the ideal partner for Cronos Group, providing the tools and experience we will need to meaningfully accelerate our strategic growth,” stated Cronos Group’s Mike Gorenstein, Chairman, President and Chief Executive Officer. “The profits from Altria’s investment will enable us to quickly expand our global infrastructure and distribution footprint, while also raising investments in R&D and brands that resonate with our consumers. Significantly, Altria shares of driving long-term value through innovation, our vision, and we look forward to continuing to distinguish in this region. As one of the largest holding companies in the mature consumer products industry, Altria has decades of experience in regulatory, government affairs, compliance, product development and brand management that we expect to leverage, particularly as new markets for cannabis open across the world.”

“Purchasing Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria,” stated Howard Willard, Altria’s Chairman and Chief Executive Officer. “We believe that Cronos Group’s excellent management team has built capabilities necessary to compete internationally, and we look forward to helping Cronos Group realize its significant growth potential.” 

Accelerates Cronos the speed of growth and expansion of Group.  As markets open, the growth opportunities for Cronos Group are significant and extend across the world. With the resources of Altria, produce products and brands across classes that are medicinal and recreational Cronos Group expects to be better positioned to support cannabinoid innovation, and expand its global footprint and production capacity.
Bolsters Cronos Group’s capacity.  Cronos Group’s research collaborations with Gingko Bioworks to develop cultured cannabinoids and its partnership with the Technion Research and Development Foundation for cannabinoid-based skincare treatments are just two recent examples of how the Cronos Group intends to use innovation and its growing intellectual property portfolio to create new programs for cannabinoids across a selection of products and categories. Altria shares Cronos Group’s commitment to medical cannabis research innovation and state of the art product development.
Leverages Altria’s product design, production, marketing and distribution capabilities and expertise.Cronos Group expects to work with Altria to quickly expand its product offerings in markets as regulations permit, including device technology. Altria has. Altria also brings experience with pre-roll technology large-scale production automation and supply chain management. Additionally, by investing the incremental funds, Cronos Group expects to improve its attractiveness as a possible partner to other consumer and medicinal focused partners who may work together with the Company to expand its product offerings and distribution capabilities.
Offers experience in successfully navigating complex regulatory arenas.  Altria has a strong record of handling regulatory, compliance and government affairs environments related to taxation, product registration, shipping and other legal issues that as cannabis markets grow Cronos Group expects to be able to leverage and open across the world.
Raises funds at a premium valuation and provides even greater upside opportunities for Cronos Group investors, employees and spouses.  Under the conditions of the agreement, Altria has agreed to acquire 146.2 million Shares at a cost of C$16.25 per Share. The cost per Share represents a 41.5% premium to the business’s 10-day volume weighted average price (“VWAP”) on the TSX, ending November 30, 2018, the last unaffected trading day prior to when Cronos Group publicly disclosed preliminary discussions with Altria. The strategic investment combined with Altria’s experience and complementary capabilities are expected to better position Cronos Group for significant growth and value creation with benefits to all of the business’s stakeholders, including its holders of Shares (the”Shareholders”), employees and partners.

The Board of Directors of Cronos Group (the”Board”), after consultation with its legal and financial advisors, has unanimously determined that the Transaction is in the best interest of Cronos Group and is unanimously recommending that Shareholders vote in favor of the Transaction. The Board has received an opinion from its financial advisor, Lazard Canada Inc., that as of the date thereof and subject to the assumptions, qualifications and limitations set forth therein, the consideration to be received by the Company pursuant to the Transaction is fair, from a financial viewpoint, to the business.

Key Transaction Terms

Pursuant to the Subscription Agreement, Altria has agreed to acquire 146.2 million Shares at closing at a cost of C$16.25 per Share, which represents a 41.5% premium to the 10-day VWAP of the Shares on the TSX on November 30, 2018, the last unaffected trading day prior to when Cronos Group publicly disclosed preliminary discussions with Altria.

Altria will also receive Warrants at closing entitling it to acquire up to an additional 10% ownership position in the Company exercisable from time to time, for a period of four years following closing for an exercise price of C$19.00 per Share, which represents an implied premium of 65.5% to the 10-day VWAP of the Shares on the TSX on November 30, 2018. Altria’s ownership interest in Cronos Group will be approximately 55 percent (calculated on a non-diluted foundation ). Moreover, the Warrants will include certain provisions.

Governance Rights

Pursuant to an investor rights agreement to be entered into, at closing (the”Investor Rights Agreement”), Altria will be able to nominate four directors, including one independent director, to serve on the Board of Directors of Cronos Group, which is expanded from five to seven directors in relation to the Transaction.

Under the Investor Rights Agreement, Altria has agreed to make Cronos Group its exclusive partner for pursuing cannabis opportunities throughout the world (subject to certain limited exceptions.

At closing, the parties are also expected to enter into support agreements under which services regarding marketing and brand management, government affairs, regulatory affairs, and research and development will be provided by Altria.  

Closing and Approvals

The Transaction is expected to close in the first half of 2019, subject to certain closing conditions including the receipt of approval from the TSX, and receipt of approval pursuant to the Investment Canada Act. Under applicable TSX rules, the Transaction will require approval by the majority of the votes cast by Shareholders as the Transaction is expected to affect control of Cronos Group.

Additional Information

Further information concerning the transaction will be contained in the management information circular to be sent to Shareholders in connection with the special meeting of Shareholders of the Company to approve the transaction. Copies of the Subscription Agreement and the agreements attached thereto as exhibits, including the form of Warrant and the form of Investor Rights Agreement, will be filed on the corporation’s profile on SEDAR at www.sedar.com and EDGAR at www.sec.gov. The above descriptions of the terms and conditions of the Subscription Agreement and the agreements attached thereto as exhibits, including the form of Warrant and the form of Investor Rights Agreement, are qualified in their entirety by the terms of the Subscription Agreement which will be filed on the business’s profile on SEDAR at www.sedar.com and EDGAR at www.sec.gov.

Advisors

Perella Weinberg Partners LP is currently serving as financial advisor and Wachtell, Lipton, Rosen & Katz and Goodmans LLP are counsel. Hunton Andrews Kurth LLP is currently providing legal counsel to Altria concerning the financing.

Analyst / Investor Conference Call and Webcast

The conference call can be accessed by dialing -LRB-647-RRB- 427-7450 for callers from the U.S. and -LRB-888-RRB- 231-8191 for international callers.

A live webcast of the conference call will be accessible at https://thecronosgroup.com/investor-relations.

A replay of the conference call will be available for approximately two weeks, from December 7, 2018 through December 21, 2018, and can be accessed by dialing -LRB-855-RRB- 859-2056 and supplying the 9359909 confirmation code.

The webcast will also be archived at https://thecronosgroup.com/investor-relations.

About Cronos Group

Cronos Group is a integrated and globally diversified cannabis firm with a presence across five continents. Cronos Group operates two wholly-owned Canadian licensed producers: Peace Naturals Project Inc., which was the first non-incumbent medical cannabis license granted by Health Canada, and Original BC Ltd., which is based in the Okanagan Valley, British Columbia. Cronos Group has multiple production and distribution platforms across five continents. Cronos Group intends to continue to expand its global footprint as it focuses on developing disruptive intellectual property and building an iconic brand portfolio. Cronos Group is committed to industry companies that are construction responsibly elevate the customer experience and that transform the perception of cannabis.

About Altria

Altria’s wholly-owned subsidiaries include Philip Morris USA Inc., U.S. Smokeless Tobacco Company LLC, John Middleton Co., Sherman Group Holdings, LLC and its subsidiaries, Nu Mark LLC, Ste. Michelle Wine Estates Ltd. (Ste. Michelle) and Philip Morris Capital Corporation. Altria retains an equity investment in Anheuser-Busch InBev SA/NV (AB InBev).

Altria’s tobacco operating companies’ brand portfolios comprise reg, Marlboro &;, Black & Mild®, Copenhagen®, reg & Skoal;, VERVE®, Green Smoke & reg; and MarkTen ®. Ste. Michelle creates and markets premium wines sold under different labels, including Chateau Ste. Michelle®, Columbia Crest®, 14 Hands® and Stag’s Leap Wine Cellars™, and it markets and imports Antinori®, Champagne Nicolas Feuillatte™, Torres® and Villa Maria Estate™ products in the United States. Service marks and trademarks related to Altria are the property of its subsidiaries or Altria or are used with permission. More information about Altria is available at altria.com and on the Altria Investor app.

Take a closer look at Altria and its companies on altria.com.

SOURCE

Released at Fri, 07 Dec 2018 15:29:32 +0000

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