Loblaw Companies Ltd. has a friendly deal to purchase Shoppers Drug Mart Corp. for $12.4 billion in cash and stock, combining Canada’s largest grocery and pharmacy chains.
Using the Friday closing price, the offer is worth $61.54 per Shoppers Drug Mart common share – about 29% above the recent average trading price for the Shoppers stock – with about 54% of the price paid in cash.
Under the terms of the agreement, which is still subject to approvals, Shoppers will keep its brand name and operate as a separate division of Loblaw.
“This transformational partnership changes the retail landscape in Canada,” said Galen G. Weston, executive chairman of Loblaw, in a joint statement Monday.
“With scale and capability, we will be able to accelerate our momentum and strengthen our position in the increasingly competitive marketplace.”
If the combination had been completed last year, the business would have had about $42 billion of revenue and $1 billion of free cash flow last year. The companies expect to produce $300 million in cost savings after three years.
Canadian retailers have faced increasing competition from large U.S. chains, such as Target, which began to roll out its stores across the country earlier this year. It joins Walmart and Costco and as well as domestic retailers such as Sobeys that offer a combination of merchandise, pharmacy products and groceries.
Domenic Pilla, president and CEO of Shoppers Drug Mart, said the deal provides “significant and immediate value” for Shoppers shareholders who will receive up to $6.7 billion of cash and 119.9 million Loblaw shares.
“For our Associate-owners and employees, who are a valued part of the equation, it provides the opportunity to pursue rewarding careers as we grow together. And for our customers, it provides more locations with an enhanced mix of products and offerings that contribute to the good health of Canadians.”
Loblaw is offering $33.18 in cash plus about six-tenths of a Loblaw common share for each Shoppers Drug Mart common share.
In a related move, George Weston Ltd. will subscribe for 10.5 million additional shares of Loblaw – its main subsidiary – valued at $500 million. Weston will pay $47.55, the closing price for Loblaw shares on Friday.
Proceeds from the Weston stock purchase will be used to pay a portion of the Shoppers purchase. George Weston will control about 46% of the Loblaw voting rights after the acquisition.
W. Galen Weston, executive chairman of Weston and the father of Loblaws executive chairman Galen G. Weston, said the investment “underscores our strong support of this transaction and the value that can be generated by combining Loblaw, Canada’s leading food retailer, and Shoppers Drug Mart, the country’s leading pharmacy retailer.”
