The Jean Coutu Group’s decision last month to sell its remaining Rite Aid Corp. stock has led some industry watchers to speculate that the company may be either looking to acquire another Canadian retailer or put itself on the block.


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Jean Coutu fills its war chest

August 5th, 2013

LONGUEUIL, Quebec – The Jean Coutu Group’s decision last month to sell its remaining Rite Aid Corp. stock has led some industry watchers to speculate that the company may be either looking to acquire another Canadian retailer or put itself on the block.

After Coutu announced on July 17 that it would dispose of the last 65.4 million shares of its Rite Aid stock, analysts began to speculate what the company would do with the growing wad of cash that it has been accumulating since it began divesting its position in Rite Aid two years ago.

The gradual sale of its Rite Aid shares, netted Coutu about $475 million (Canadian). The company has no debt on its balance sheet.

“Jean Coutu’s management has been open about their desire to participate in industry consolidation to improve profitability eroded by government drug reforms,” Jim Durran, head of research and managing director at Barclays Capital in Toronto, wrote in a recent research note. “Given the size of the cash balance and the speed at which Jean Coutu has built up the balance sheet, we believe this Rite Aid sale and the preceding one have increased the possibility that Jean Coutu could be preparing to make an acquisition.”

Durran said he thinks Coutu could take over a pharmacy chain with as many as 800 stores.
The speculation over what Coutu will do is the latest chapter in what has become growing conjecture about the future of Canadian chain drug retailing.

According to a report in the Canadian newspaper Financial Post, some have suggested that Metro Inc. could be a potential buyer of the Katz Group’s remaining 500 or so Rexall units.

Others, the report notes, have said that with Empire Co. saying it will sell $1 billion in noncore assets to fund its Safeway Canada acquisition, the company’s 78 Lawtons Drugs stores in Atlantic Canada may be in play.

Meanwhile, Barclay’s Durran said that while Coutu executives have not indicated any intentions to put the company up for sale, the possibility that Coutu is preparing itself to be acquired cannot be dismissed.

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