Weeks after applying for creditor protection, cannabis retailer, Tokyo Smoke, is seeking interested bidders to sell off its business. The company is entering into a stalking horse process with its parent company TS Investment Corp. and is likely in talks with a few bidders.
As per the press release, the company revealed that TS Investment Corp. is subscribing “for all of the issued and outstanding shares of Tokyo Smoke.” The press release reads, “Interested bidders are encouraged to participate in the Sale Process. The Sale Process is a two-phase process that will commence on September 20, 2024. Phase I is intended to solicit non-binding letters of interest. The deadline to submit letters of interest compliant with the Sale Process terms is 5:00 p.m. Eastern Time on October 21, 2024. Phase II will solicit binding agreements from compliant parties with bids required to be submitted by 5:00 pm Eastern Time on November 11, 2024.”
Stalking Horse Agreement highlight the purchase price is approximately $77 million in addition to the buyer’s obligation to assume certain liabilities.
As per a motion made public by Alvarez & Marsal Canada Inc., the stalking horse agreement will be presented before the judge on Thursday, TS will subscribe to all of Tokyo Smoke’s issued and outstanding shares.
On August 28, Tokyo Smoke filed for an initial order under Creditor’s Protection with the Ontario Superior Court. In addition, the company shut down 29 of its stores across Canada. The company also announced that its 167 stores across Ontario, Manitoba, Saskatchewan and Newfoundland and Labrador would remain operational. The reason the company is in a downward spiral is possibly a surge in competition. The number of cannabis retail licenses has gone up to over 1600 from less than 100.
The company has also begun restructuring to better adapt to current market situations. “Following a thorough review of all available options and alternatives, Tokyo Smoke commenced the restructuring to align its operations with current market and regulatory conditions, which have significantly changed since the initial licensing regimes in the provinces where Tokyo Smoke operates were introduced,” the company said via press release.
As per an August 27 document, “As [of] June 30, 2024, the applicants held assets with a book value of approximately $148.2M and had liabilities with a book value of approximately $237.4M. The companies have been operating at a loss and are wholly dependent on financing from related parties and third-party lenders to meet their working capital needs. Tokyo Smoke had a net loss of $29.3M for the fiscal year ended June 30, 2024. Without financing, the companies are not able to satisfy their obligations as they become due.”
