Loblaws to acquire Shoppers Drug Mart

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Loblaw Cos. is acquiring Shoppers Drug Mart for $12.4 billion (Canadian) in a cash and stock deal.

The deal unites Canada's largest food retailer with its biggest drug chain, creating what the companies called "a unique retailer with unmatched capabilities in health and wellness and nutrition."

Plans call for Shoppers Drug Mart to retain its name and brand and operate as a separate division of Loblaws.

TORONTO — Loblaw Cos. is acquiring Shoppers Drug Mart for $12.4 billion (Canadian) in a cash and stock deal.

Under the agreement announced Monday, Shoppers Drug Mart will retain its name and brand and operate as a separate division of Loblaws.

The deal unites Canada’s largest food retailer with the country’s biggest drug chain. Shoppers Drug Mart’s store base encompasses 1,242 Shoppers Drug Mart and Pharmaprix drug stores in each province and two territories, along with 57 medical clinic pharmacies under the Shoppers Simply Pharmacy/Pharmaprix Simplement Santé banners, six Murale luxury beauty outlets and 62 Shoppers Home Health Care stores.

Loblaw’s store network includes more than 1,000 corporate and franchised supermarkets across Canada under 22 banners. Loblaw’s approximately 500 pharmacies are under such store banners as Loblaws, Loblaw greatfood, Zehrs, Zehrs greatfood, Fortinos, Real Canadian Superstore, nofrills, valu-mart, Atlantic Superstore, Save-Easy, Provigo, Maxi & Cie, Extra Foods, Wholesale Club, Your Independent Grocer, SuperValu and Dominion locations in Newfoundland only.

"We are delighted to partner with Loblaws to leverage our combined strengths. For our shareholders, this transaction provides significant and immediate value, as well as the ability to benefit from future upside by virtue of their continued ownership of shares in the combined company," Domenic Pilla, president and chief executive officer of Shoppers Drug Mart, said in a statement. "For our associate-owners and employees, who are a valued part of the equation, it provides the opportunity to pursue rewarding careers as we grow together. And for our customers, it provides more locations with an enhanced mix of products and offerings that contribute to the good health of Canadians."

Combined, Loblaw and Shoppers Drug Mart generated revenue of more than $42 billion in 2012, on a pro forma basis. Overall, the merged company will have 2,348 stores and 1,797 pharmacies.

The companies said the deal brings together best-in-class pharmacy and food businesses "to create a unique retailer with unmatched capabilities in health and wellness and nutrition." With the transaction, Loblaw gains footprint in the growing small-urban store sector, and Shoppers Drug Mart will expand its product offerings to include Loblaw’s private label and convenience food. The Canadian food retailer is a pioneer in the store-brand space with its President’s Choice label.

"Our customer proposition is at the heart of this combination," stated Vicente Trius, president of Loblaws. "Together, we will be able to significantly enhance the customer experience by offering even greater assortments, service, value and convenience while preserving the unique shopping experiences that make both companies leaders in their respective segments. We are extremely happy to welcome Shoppers Drug Mart and its talented people, including their entrepreneurial and trusted associate-owners, who are well-known for their patient care and friendly customer service."

The acquisition will be carried out via a court-approved plan and will require the approval of at least 66% of the votes cast by the shareholders of Shoppers Drug Mart at a special meeting to be held in September.

Under the transaction, Loblaw will acquire all outstanding Shoppers Drug Mart common shares for $33.18 in cash plus 0.5965 Loblaw common shares for each Shoppers Drug Mart common share, amounting to $61.54 per Shoppers Drug Mart common share. This represents 29.4% premium to the 20-day volume-weighted average price of Shoppers Drug Mart shares as of July 12, the companies said.

Once the deal is completed, Shoppers Drug Mart shareholders will own approximately 29% of the combined company. Food processor and distributor George Weston Ltd., Loblaw’s controlling shareholder, will have voting ownership of about 46% of Loblaw’s common shares after the agreement is finalized.

The combination is expected to yield annual cost synergies of $300 million by year three, phased in evenly over the first three years following closing. The synergies are not dependent on any store closings, the companies said.

"This investment underscores our strong support of this transaction and the value that can be generated by combining Loblaw, Canada’s leading food retailer, and Shoppers Drug Mart, the country’s leading pharmacy retailer," commented W. Galen Weston, executive chairman of George Weston Ltd. "By joining forces, the combined company will be uniquely positioned to better serve Canadian consumers and have the means to bring exciting innovations to the Canadian marketplace, leading to even stronger growth and profitability." 



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