When Aurora Cannabis Inc (TSE:ACB) (NYSE:ACB) (FRA:21P) Chief Operating Officer Cam Battley signaled that institutional investors were coming, it was a message to be taken seriously. The endless meetings with asset management power brokers paid off on Wednesday, as the company announced transformative news that is bearing out in the market today.
Before the bell, Aurora Cannabis disseminated that it has appointed Nelson Peltz as a Strategic Advisor. Nelson Peltz is the Chief Executive Officer and a Founding Partner of Trian Fund Management, L.P., a multi-billion dollar investment management firm with substantial investments in several Fortune 100 companies.
Mr. Peltz’s involvement in Aurora Cannabis isn’t just about some billionaire making a passive investment—it’s about prestige, legitimacy and access.
Mr. Peltz serves as the non-executive Chairman of The Wendy’s Company. He previously served as a director of H. J. Heinz Company, U.S. investment bank Legg Mason, global industrial manufacturer Ingersoll-Rand PLC. From April 1993 through June 2007, Mr. Peltz served as Chairman and Chief Executive Officer of Triarc Companies, Inc. which during that period of time owned Arby’s Restaurant Group, Inc. and the Snapple Beverage Group, as well as other consumer and industrial businesses.
Perhaps going unnoticed is how Nelson Peltz’s appointment could help Aurora Cannabis further strengthen governance. As cannabis investors well know, that’s an important operational and investment risk inherent to the sector.
According to Trian’s corporate biography page, Mr. Peltz was recognized by The National Association of Corporate Directors (NACD) in 2010, 2011 and 2012 as among the most influential people in the global corporate governance arena. While Aurora Cannabis hasn’t been involved in governance malfeasance themselves, further strengthening this domain provides an additional advantage over its peer group. The NACD’s stated mission is to advance exemplary board leadership – for directors, by directors by providing the information and insights that board members need to confidently navigate business challenges and enhance shareowner value.
In consideration for services rendered by Mr. Peltz, Aurora has granted 19,961,754 purchase options at a price C$10.34/share. The options will vest ratably over a 4-year period (quarterly), subject to accelerated vesting based on the occurrence of certain specified events. One such event is the closing price of Aurora’s common shares being at least CAD$31.02—and additionally—C$41.36 for a specified number of trading days. Should Nelson Peltz help guide Aurora to such lofty price objectives, both parties in the transaction will be handsomely rewarded.
Although Trian Fund Management haven’t taken a specific position in ACB themselves, there’s a couple noteworthy sub-narratives beyond an elite capitalist advising the company.
Firstly, it appears that Trian is not simply some passive fund manager. According to the company’s website, “Trian is a highly engaged shareowner (italics not my own) that combines concentrated public equity ownership with operational expertise.” This is the type of organization that not only takes 9 and 10-digit equity positions, they provide active counsel to help vested companies achieve operational benchmarks and increase ROI. Obviously, Trian doesn’t invest their time and energy in just anyone; investors should assume there’s acute attributes they glean in Aurora Cannabis that makes such an investment worthwhile.
Secondly, Nelson Peltz currently sits on the Board of Proctor & Gamble—the $265 billion multi-national consumer goods titan that has several Pharma-based and cosmetic subsidiaries. While P&G hasn’t made any overtures about entering the cannabis space to-date, it’s doesn’t take much imagination to connect the dots of future involvement. That will likely transpire at a measured pace, as the cannabis marketplace matures and the U.S. eventually legalizes cannabis on a federal level.
Aurora Cannabis COO Cam Battley explains why ACB is “keeping its powder dry” in respects to not jumping into a conglomerate partnership too soon.
Final Thoughts
Either way you slice it, we consider today’s news a transformative event for Aurora Cannabis. Not only are they obtaining strategic guidance from an elite corporate executive, they have an influential voice to help solidify Aurora’s corporate governance policies—thus abetting them with strategic advantage. The connection also opens up the possibility for future Trian Fund Management fund involvement—although that’s only supposition at this point. Taking token positions isn’t part of this firm’s lexicon.
Furthermore, Mr. Peltz’s Board involvement with Proctor & Gamble’s Board provides a potential long-cycle affiliation. As a premier CPG company known for its pharma, neutriceutical and edibles brands, one would presume an Aurora Cannabis-P&G axis could be fomented should the latter decide to enter the market. Thus, Mr. Peltz could be an important bridge connection to that developing relationship.
As of this publishing, the market has responding quite favorably to the announcement. Aurora Cannabis is currently ↑$1.01 to $11.65 (↑9.49%).
