Loblaw to buy Shoppers in C$12.4 billion bid to defend turf

Mon Jul 15, 2013 4:15pm EDT
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By Solarina Ho and Bhaswati Mukhopadhyay

(Reuters) - Loblaw Cos Ltd (L.TO: Quote), Canada's largest food retailer, announced a C$12.4 billion ($11.9 billion) deal on Monday to buy Shoppers Drug Mart Corp SC.TO, the country's biggest pharmacy chain, to bulk up against intensifying competition.

News of the tie-up, Canada's biggest merger deal so far this year, sent Shoppers shares soaring 26 percent to just under the C$61.54 per share price offered by Loblaw. Loblaw shares rose more than 9 percent at one point as investors welcomed the prospect of cost savings and increased scale.

Loblaw and parent George Weston Ltd (WN.TO: Quote) have been under increasing pressure from long-time foreign rival Wal-Mart Stores Inc (WMT.N: Quote), which has ramped up its grocery offerings. Newer entrant Target Corp (TGT.N: Quote), which offers a smaller selection of groceries, opened its first 24 Canadian stores in March and plans to have 124 stores across the country by yearend.

And local rival Empire Co Ltd (EMPa.TO: Quote) last month said it was acquiring Safeway Inc's Canadian assets for $5.7 billion, cementing its position as Canada's No. 2 grocer.

"We think the deal was a long time coming ... Shoppers Drug Mart was a sitting duck," said Barry Schwartz, a portfolio manager at Baskin Financial Services, which owns some 140,000 shares of Shoppers. "I think the Empire-Safeway transaction lit a fire under Loblaws to make a deal."

Loblaw, which opened its first store in Toronto 94 years ago and now operates more than 1,000 corporate and franchised stores in Canada, is owned by Toronto's billionaire Weston family, repeatedly ranked as the country's second wealthiest.

Starting with a bakery in Toronto, the Westons' empire now includes Selfridges and Fortnum & Mason in Britain as well as upscale retailers Holt Renfrew in Canada and Brown Thomas in Ireland.

Galen Weston, Loblaw's executive chairman, told reporters he and Shoppers Drug Mart Chairman Holger Kluge brokered the cash-and-stock deal last week during a drive along a country road.   Continued...

Executive chairman of Loblaw Companies Limited Galen G. Weston and Chair of the Board of Directors of Shoppers Drug Mart Holger Kluge (2nd R) shake hands, as President of Loblaw companies Limited Vicente Trius (R) and Shoppers Drug Mart CEO Domenic Pilla (L) look on during a news conference in Toronto, July 15, 2013. REUTERS/Mark Blinch