Today stockholders of AeroGrow International, Inc. (OTCQB: AERO) (AeroGrow) representing approximately 1,700,000 shares (the Stockholders) announced their intention to reject Scotts Miracle-Gro’s (SMG) offer of $3.00 per share merger consideration and instead exercise their right to dissent and demand fair payment for their shares. In the dissenters’ rights proceedings, these stockholders will demonstrate that (1) SMG egregiously manipulated both the trading and appraised price of AeroGrow stock, (2) the AeroGrow Special Committee and Board of Directors did little to mitigate SMG’s abhorrent behavior and instead agreed to merger consideration that they knew was substantially below fair market value, and (3) both the trading price of AeroGrow’s stock prior to SMG’s manipulative actions and an assessment of AeroGrow’s value by an independent valuation expert clearly establish that the offered price is wholly inadequate.
AeroGrow’s Sustained Growth - In the past year, AeroGrow has expanded its product offerings with new and higher average-selling-price products and has seen increasing sell-through in its distribution channels. AeroGrow is also benefitting from demand for home grown food and the legalization of cannabis. Following solid fiscal year 2020 results, AeroGrow announced a record first quarter fiscal year 2021, with revenue up 267%, gross margin improvement of 1,200 basis points, and its first-ever, first quarter profit of $2.7 million. In its earnings release, AeroGrow noted that "favorable sales trends continue," emphasizing that this is a trend and not a temporary blip.
SMG’s Manipulation of AeroGrow’s Trading Price - The Stockholders believe that SMG engaged in manipulative practices in order to acquire AeroGrow at a substantial discount to fair market value. When SMG announced its intent to acquire AeroGrow in its Schedule 13D filed with the SEC on August 18, 2020, AeroGrow’s stock was trading at approximately $5.70 per share. Because there were no definitive developments in the acquisition process that would necessitate such filing, it appears that the gratuitous announcement that SMG intended to acquire AeroGrow for $1.75 per share was intended to put a damper on the steadily increasing stock price. The market-manipulating announcement had its intended impact and the stock price immediately fell to just below $3.00. Subsequently, on November 11, 2020, AeroGrow entered into a merger agreement with SMG, which provided for merger consideration of $3.00 per share, a near 50% discount to the trading price prior to SMG’s Schedule 13D announcement.
SMG’s Manipulation of the Appraised Stock Price – The Stockholders believe that SMG indulged the AeroGrow Special Committee sales process in order to create the impression of legitimacy, but that SMG’s thumb was on the scale throughout the entire process. The Stockholders assert that SMG attempted to beat back the valuation at every opportunity and the AeroGrow Special Committee did little to protect the minority stockholders. As chronicled in AeroGrow’s proxy statement relating to the merger, SMG interfered with the purported “market check” process by, among other things (1) thwarting any meaningful alternative bids and (2) inappropriately influencing the projections used by Stifel, AeroGrow’s valuation expert, to produce its fairness opinion. The proxy statement demonstrates that SMG thwarted meaningful bids by announcing that SMG would not cooperate with a sale to another bidder, that any continuation of SMG’s intellectual property and other commercial agreements with AeroGrow would not be offered “on the same favorable terms” to another acquirer, and significantly overstating the value of such intellectual property in an effort to dissuade suitors. The Stockholders also believe that SMG manipulated the fairness opinion, first, by purposefully causing a delay in the rollout of AeroGrow’s new product, “Bloom,” and, second, by causing Stifel to include in its analysis substantially lower forecast numbers than those initially provided by AeroGrow’s management for both existing products and the new Bloom product. The resulting valuation was significantly lower than the range shown in the preliminary analysis by Stifel of a per share value between $5.90 and $8.20. The Stockholders believe that the fairness opinion described in the proxy statement was based on inaccurate and incomplete information, including: inappropriate comparable companies; a flawed discounted cash flow analysis; and misleadingly low forecast numbers influenced by SMG, which differed materially from management’s initial forecast.
Minority Stockholders Seek Recourse and Fair Value - Multiple putative class actions have been filed by stockholders of AeroGrow to seek recourse against the brazen breaches of fiduciary duties by the AeroGrow board members. Unlike such actions that apply to the entire class, dissenter rights must be exercised by each stockholder and the success of any dissenter action will only benefit the participants in the dissenter action. The Stockholders intend to pool resources and share costs in order to pursue their rights under Nevada law to dissent and receive fair payment for their shares. They intend to show that, absent the clear and egregious manipulation by SMG, both the trading price and the appraised value of AeroGrow stock far exceed the meager price that the AeroGrow board ultimately accepted. The Stockholders strongly believe that the evidence they will present in the Nevada -dissenter’s rights proceeding will prove that the $3.00 per share offer is wholly inadequate and that those participating in the dissenters’ right action are entitled to significantly higher merger consideration.
The Stockholders are providing this material for general informational purposes only. None of the information provided herein is intended to be relied on as investment advice. The opinions expressed in this presentation are those of the Stockholders as of the date of this release and are subject to change at any time due to changes in market, economic conditions, or new information pertinent to the proposed merger. The information and opinions contained in this material are derived from sources deemed by the Stockholders to be reliable and are not necessarily all-inclusive. The Stockholders do not guarantee the accuracy or completeness of this information. There is no guarantee that any forecasts made by any party will come to pass. Reliance on information in this material is at the sole discretion of the reader. The Stockholders are not soliciting proxies relating to the AeroGrow stockholder meeting and do not have the authority to vote your proxy.