* Retailer offers C$26.50/share, premium of 50 pct
* Sees deal adding to earnings in 2011
* Deal expected to close in third quarter
* Canadian Tire up 2.73 pct to C$60.19; Forzani up 49 pct (Adds CFO interview, analyst comment; updates shares to close)
By S. John Tilak
TORONTO, May 9 (Reuters) - Canadian Tire Corp (CTC.TO) (CTCa.TO) will pay C$771 million ($798.5 million) to acquire Forzani Group Ltd FGL.TO, 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 country’s sporting goods market, a presence in Canadian malls and an avenue for reaching younger consumers.
The proposed acquisition, announced on Monday, comes as U.S. retailers look for growth opportunities north of the border and nearly four months after Target Corp (TGT.N), 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 pay C$26.50 a share in cash for the 96 percent of Forzani shares it does not already own, a premium of 50 percent over Friday’s close. The deal values the entire company at C$803 million.
“It’s a good price. I don’t think an American company will step up,” Octagon Capital analyst Bob Gibson said.
The company, whose flagship Canadian Tire stores are warehouse-sized, standalone outlets, will run Forzani as a separate business unit.
The iconic Canadian Tire chain, founded in 1922, already carries sporting goods as well as automotive products, gardening supplies, housewares and hardware.
The Toronto-based company also owns the Mark’s Work Wearhouse chain of more than 380 stores that feature casual and work clothing. Canadian Tire acquired Mark’s about a decade ago.
Mark’s is an indication of what Canadian Tire could do with Forzani, Edward Jones analyst Brian Yarbrough said.
“They’ve been extremely successful with Mark‘s,” he said, pointing out that Mark’s has more than doubled its revenue in the last 10 years and improved its margins.
With the addition of Forzani, it will have more than 1,000 outlets carrying sporting goods.
Negotiations between the two companies began about two and a half months ago, though Canadian Tire began buying Forzani shares in December, Chief Executive Stephen Wetmore said at a media briefing.
Chief Financial Officer Marco Marrone said the company has been looked at Forzani for the past decade.
“Why now? Our balance sheet is in the best shape as it’s been in the last decade,” Marrone told Reuters in an interview.
While Canadian Tire is likely to make more acquisitions, there was nothing imminent, he said.
JANUARY WAKE-UP CALL
In January, Target (TGT.N) 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. [ID:nN13272785]
That deal signaled Target’s intention to move aggressively into Canada, a move long anticipated by the industry.
Canadian Tire’s class A shares have declined more than 10 percent since the Target deal was announced.
Canadian Tire may have been even more concerned by the possible entry of Dick’s Sporting Goods (DKS.N) into Canada, Desjardins Securities analyst Keith Howlett said.
”“Dick’s is undoubtedly looking at Canada. Every other major U.S. retailer is looking as the growth profile is better,” Howlett said.
Canadian Tire’s stock rose 2.73 percent to C$60.19 on Monday. Forzani shares jumped 49 percent to C$26.25, in line with the offer.
Canadian Tire sees annual savings with the deal of some C$35 million, with about C$25 million expected in 2012.
The company 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 in 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. ($1=$0.965 Canadian) (Additional reporting by Pav Jordan in Toronto and Arnika Thakur in Bangalore; Editing by Frank McGurty)