Aerogrow, Scotts move forward with acquisition process

BOULDER — Scotts Miracle-Gro Co. (NYSE: SMG) and AeroGrow International Inc. (OTCQB: AERO) recently agreed to move forward with a plan that would result in Scotts acquiring all outstanding shares of the Boulder-based indoor plant grow system manufacturer, according to an executed letter of intent disclosed to the U.S. Securities and Exchange Commission last week.

If the deal closes, AeroGrow will become a wholly owned subsidiary of Scotts. 

Scotts, which already owns about 80.5% of AeroGrow’s 34,328,036 outstanding shares of common stock, has offered $3 per share for the remaining shares.

In August, Scotts offered $1.75 for the outstanding shares, which sent Aerogrow’s stock price plunging from as high as $5.74 per share — close to the firm’s 52-week high — on Tuesday, Aug. 18, to $3.13 to close trading on the following Thursday. 

The price has hovered around $3 per share since that dive.

Scotts effectively controls AeroGrow’s board of directors, as that five-member body “is composed 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 letter of intent, dated Oct. 1, “was approved by the AeroGrow board of directors after a recommendation from the special committee of the board consisting of the independent directors,” AeroGrow’s regulatory disclosure said. “The special committee made the recommendation after consultation with Stifel, which has acted as the financial advisor to the special committee.”

Neither company responded to requests for comment Monday. 

The parties expect the acquisition to close before the end of the year, and the letter of intent will be voided should the deal not come together before March 31, 2021.

The letter sets forth an exclusivity period to last until Nov. 15 during which AeroGrow is barred from attempting to “solicit, initiate or encourage the submission of any acquisition proposal” from a company other than Scotts, the SEC filing said.

AeroGrow, which was founded in 2002 and went public in 2006, began its relationship with Scotts in 2013 when the Marysville, Ohio-based firm invested $4.5 million in exchange for about 30% of AeroGrow’s equity. 

More recently, Scotts provided AeroGrow with a $7.5 million loan in August, the same month it made its $1.75 per outstanding share acquisition offer. 

Also in August,  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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