Acquisition offer from Scott’s sends AeroGrow stock tumbling

BOULDER — Scotts Miracle-Gro Co. (NYSE: SMG), owner of 80.5% of AeroGrow International Inc. (OTCQB: AERO) stock, offered this week to purchase the remainder of Boulder-based indoor grow system manufacturer’s outstanding shares for $1.75 per share.

When documents related to the offer were filed with the U.S. Securities and Exchange Commission Tuesday, Aergrow’s stock was trading as high as $5.74 per share, close to the firm’s 52-week high. The price tumbled nearly 30% on Wednesday and was down another 22.72% on Thursday, finishing the day trading at $3.13.

Unsurprisingly, this development is not sitting well with some current AeroGrow investors, who say Scotts is bullying the much smaller firm.

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“I started investing in Aero about four years ago in 2016. I did a large amount of research on the Aero team and on its products, and saw the huge potential for the growth of hydroponics especially relating to growing cannabis,” Gary Perelberg told BizWest in an email. “… This kind of greed from a company as large as Scotts is unprecedented especially since it comes at a time when Aero’s price was literally skyrocketing and closely related companies such as GrowGeneration were rapidly increasing in stock price.”

Scotts’ offer, which AeroGrow has not yet decided to accept, comes less than two weeks after Aerogrow took out a $7.5 million loan from its majority investor for working capital.

Neither company responded to requests for comment Thursday.

Scotts effectively controls AeroGrow’s board of directors, as that five-member body “is comprised of three members who are affiliated with Scotts Miracle-Gro and two members who are not affiliated with Scotts Miracle-Gro,” according to a regulatory disclosure. 

The independent directors formed a special committee and hired Stifel Financial Corp. to evaluate the offer and alternatives to maximize shareholder value. 

“The special committee will review the Scotts Miracle-Gro Co.’s [offer] and is working closely with Stifel in considering the next steps in this process and intends to move forward in considering all alternatives,” Aerogrow announced Wednesday. “However, there is no certainty that the review of strategic alternatives will result in the company pursuing a particular transaction or completing any such transaction.”

In a letter to Stifel dated Aug. 17, Peter Supron, chief of staff to Scotts’ president, wrote, “Scotts continues to believe that it is uniquely positioned to negotiate and consummate a transaction that can reliably and efficiently close and that would maximize value for all AeroGrow shareholders. Among other considerations, Scotts’ intimate familiarity with AeroGrow’s operations eliminates the need for diligence, eliminates the risk that diligence identifies issues that would prevent the consummation of a transaction or result in a price reduction, and makes a speedy closing much more certain. Moreover, a transaction with Scotts would obviate any need to negotiate with Scotts regarding the Scotts-owned assets that are critical to AeroGrow’s business.”

The Scotts takeover attempt and the stock price rollercoaster ride comes at a time when AeroGrow, which has lost money in many quarters since its launch in 2002, has begun to turn a profit. 

Last month AeroGrow reported a record $11.8 million in sales for the quarter, good for a 29% increase over the same period in 2019. That sales jump was attributed to the COVID-19 pandemic leading people to want to grow fresh food at home.

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