Loblaw to buy Shoppers Drug Mart for $12.4B

CP24 ^ | July 15, 2013

[Squawk 8888]

TORONTO -- Loblaw Companies Ltd. (TSX: L) has a friendly deal to purchase Shoppers Drug Mart Corp. (TSX: SC) for $12.4 billion in cash and stock -- a deal that will combine 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 per cent above the recent average trading price for the Shoppers stock.

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.

"With scale and capability, we will be able to accelerate our momentum and strengthen our position in the increasingly competitive marketplace."

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 shareholders.

"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. (TSX:WN) will subscribe for 10.5 million additional shares of Loblaw -- its main subsidiary -- valued at $500 million. Weston will py $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 per cent 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."

[Squawk 8888]

To all- please ping me to Canadian topics.

Canada Ping!

[Gay State Conservative]

A woman I once worked with grew up in Nova Scotia and came to the US as an adult after having married an American.She told me that her small town had an “IGA” (which we used to have here but they disappeared long ago).She said that the nickname given to the store by the locals was “I'll Gyp Anyone”.

[SoothingDave]

Bob Loblaw?

[secret garden]

Cracked up as soon as I saw your ping!

[Don W]

This is interesting, in that Loblaws already has in-store pharmacies in many if not all of their Real Canadian Warehouse and Superstore outlets. Well, out here on the west coast they do.

[Squawk 8888]

They do here as well. I’ve noticed that their in-store pharmacies operate at a significantly lower price point than SDM.

[RansomOttawa]

This is interesting, in that Loblaws already has in-store pharmacies in many if not all of their Real Canadian Warehouse and Superstore outlets. Well, out here on the west coast they do.

Here in the east as well.

Shoppers has been expanding their food section recently, especially in their newer, larger stores—some of which even have fresh produce. I suspect that the changes to Shoppers, if any, will be greater than to Loblaws.

Hey, maybe we can buy President's Choice stuff at twice the price!