Chris Wattie/ReutersA Shoppers Drug Mart in Ottawa.
8:39 a.m. | Updated
OTTAWA – The Loblaw Companies, Canada’s largest grocer, said on Monday that it would acquire Shoppers Drug Mart, the country’s biggest pharmacy chain, for $11.9 billion in cash and stock.
The move comes after a serious challenge to the family owned Loblaw’s core business. Last month, Sobey’s, another family owned grocery store chain, acquired the Canadian stores of Safeway for $5.8 billion in cash.
Loblaw will exchange the equivalent of 33.18 Canadian dollars in cash and 0.5965 of a common share for each Shoppers Drug Mart share. The grocery chain said the combined value was 61.54 Canadian dollars ($59.05), a 29.4 percent premium to the average share price of the drug chain over the last 20 days.
Under the current plan, Shoppers Drug Mart shareholders can choose either 61.54 dollars in cash or 1.29417 Loblaw shares plus one Canadian cent for each of their shares.
Galen G. Weston, the executive chairman of Loblaw, said in a statement that the takeover would allow the company “to capitalize on important trends in society, from the emphasis on health, wellness and nutrition, to the imperatives of value and convenience.”
Domenic Pilla, the president and chief executive of Shoppers, will manage the pharmacy as a separate unit that will continue to operate under its own brand names, which include Pharmaprix in Quebec. But it appears that the drugstores, many of which are franchises, will rely on Loblaw’s warehousing and distribution system and may sell Loblaw’s house brand food products. A recent and significant expansion of Shoppers Drug Mart has emphasized and increased the selection of food products at many of its stores, potentially creating issues for the takeover under competition law.
It was not immediately clear how the transaction would affect pharmacies in Loblaw’s grocery stores.
The combined company would have revenue of 42 billion dollars. Loblaw said the 6.7 billion dollars needed for the transaction will come from its cash reserves, as well as a term loan of 3.5 billion dollars and a bridge loan of 1.6 billion dollars. The credit facility is being provided by Merrill Lynch, Pierce, Fenner Smith Inc.; Bank of America; and the Canadian branch of Bank of America.
George Weston, the Weston family holding company that controls Loblaw, will buy 500 million dollars worth of Loblaw common shares at 47.55 dollars a share as part of the transaction. That would give the Weston family 46 percent of Loblaw’s share after the takeover. Shoppers Drug Mart shareholders would own 29 percent of the combined company.
Bank of America Merrill Lynch acted as financial adviser to Loblaw. RBC Capital Markets advised Shoppers Drug Mart and has provided an opinion to the drug chain’s board of directors. Loblaw retained Torys as its legal counsel and Borden Ladner Gervais in connection with competition matters. Osler, Hoskin Harcourt acted as legal counsel to Shoppers Drug Mart.
Article source: http://dealbook.nytimes.com/2013/07/15/loblaw-to-buy-shoppers-drug-mart-in-canada/?partner=rss&emc=rss