Shoppers soars on Loblaw deal, TSX at one-month high

Mon Jul 15, 2013 5:02pm EDT
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By John Tilak

TORONTO (Reuters) - Canada's main stock index rose on Monday to a one-month high as a deal by grocer Loblaw Cos Ltd (L.TO: Quote) to buy Shoppers Drug Mart Corp SC.TO for C$12.4 billion ($11.9 billion) boosted the pharmacy chain's shares and buoyed broader market sentiment.

Investors also digested data showing the Chinese economy slowed in the second quarter and U.S. retail sales rose less than expected in June.

The shares of Shoppers, the country's biggest pharmacy chain, shot up more than 24 percent and had the biggest positive influence on the market.

Facing heightened competition from Target Corp (TGT.N: Quote) and Wal-Mart Stores Inc (WMT.N: Quote), Loblaw said it would create a retail giant with more than C$42 billion in revenue and gain access to the growing small-urban store sector.

"Loblaw has reorganized its business operations with a vengeance," said Elvis Picardo, strategist and vice president of research at Global Securities in Vancouver. "It spun off its real estate operations into a REIT, and now it's come out of the blue and made this big acquisition.

"The very fact that the market reaction has been so favorable indicates optimism that there's synergy there, that it's not an acquisition that's made at a ridiculous price or at a sky-high multiple."

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed up 66.17 points, or 0.53 percent, at 12,528.35, after reaching 12,569.93, its highest since June 5.

The benchmark Canadian index extended its advances from the previous week, when it jumped the most in more than 7 months.   Continued...

A Toronto Stock Exchange (TSX) logo is seen in Toronto November 9, 2007. REUTERS/Mark Blinch (CANADA) - RTX5UA