TORONTO (Reuters) - Canadian Tire Corp said on Monday it would pay C$771 million ($798.5 million) to acquire Forzani Group Ltd, Canada’s No.1 sporting goods retailer, in its biggest acquisition yet.
The friendly deal will give Canadian Tire, one of Canada’s biggest and best-known retailers, a commanding share of the sporting goods market, a presence in Canadian malls and an avenue for reaching younger consumers.
“The time has come for our company to go on offense,” said Stephen Wetmore, Canadian Tire’s chief executive, referring to the retailer’s decision to expand aggressively into sporting goods.
The acquisition comes as U.S. retailers look for growth opportunities north of the border and nearly four months after Target Corp, the No.2 U.S. discounter, said it would enter Canada.
Founded in 1973, Forzani operates more than 500 retail outlets across Canada, under the Sport Chek, Sports Experts Atmosphere and National Sport banners. It has annual revenue of about C$1.4 billion.
Canadian Tire will run Forzani as a separate business unit. The iconic Canadian Tire chain, founded in 1922, already carries sporting goods and also features automotive, gardening, housewares and hardware. It also owns the Mark’s Work Wearhouse chain of more than 380 stores focusing on casual and work clothing.
With the addition of Forzani, the company will have more than 1,000 outlets carrying sporting goods.
Canadian Tire will pay C$26.50 per share in cash for the 96 percent of Forzani shares it does not already own. The price represents a premium of 50 percent over Friday’s close.
Merger negotiations between the two companies began about two and a half months ago, but Canadian Tire began buying Forzani shares in December, Wetmore said at a media briefing.
Forzani shares jumped 49 percent to C$26.24 on Monday morning, in line with the Canadian Tire offer.
“It’s a good price. I don’t think an American company will step up,” Octagon Capital analyst Bob Gibson said.
Canadian retailers took notice in January when Target announced a C$1.83 billion deal to take over Canadian leases for Zellers stores owned by Hudson’s Bay Co, North America’s oldest company. That deal signaled Target’s intention to move aggressively into Canada, a move long anticipated by the industry.
Canadian Tire and Forzani entered into negotiations soon after the Target deal was announced.
Forzani Chief Executive Bob Sartor said on Monday private equity had also shown interest in the company in the past, but no other company has approached recently.
Canadian Tire’s more heavily traded class A shares had declined more than 10 percent since the Target deal was announced.
The company’s stock rose 2.41 percent to C$60.11 after the Forzani deal was announced on Monday.
Canadian Tire sees annual savings with the deal of some C$35 million, with about C$25 million expected in 2012.
Wetmore said competition was strong in Canada’s fragmented sporting goods market, and he expects no regulatory hurdles to approval of the deal.
Canadian Tire will finance the deal with C$500 million of cash on hand and with short-term financing. It expects to return to pre-acquisition leverage levels within 18 to 24 months of the deal closing.
Canadian Tire was advised by BMO Capital Markets while Forzani was advised by Greenhill & Co Canada Ltd.
Additional reporting by Pav Jordan in Toronto and Arnika Thakur in Bangalore; Editing by Frank McGurty