Loblaw Companies Limited to acquire Shoppers Drug Mart Corporation for $12.4 billion

Loblaw Companies Limited to acquire Shoppers Drug Mart Corporation for $12.4 billion

This is an absolutely huge potential change to the Canadian retail landscape:

Key Takeaways:

1. One of the largest (if not THE largest) retail transactions in Canadian history
2. Gives Loblaws access to a huge portfolio of expensive and increasingly difficult to zone urban real estate
3. Synergies in operations and economies of scale will reduce operations costs
4. Positions itself for a larger share of pharmacy sales which are increasing strongly due to aging population
5. Prevents potential Shoppers acquisition by international pharmacy (i.e. Walgreens & Boots)
6. Loblaws can partially finance transaction by selling off redundant real estate
7. Competition bureau will need to approve this and will likely require some sites where presence is above Bureau thresholds to be sold off (see their Merger Enforcement Guidelines [pdf])
8. Loblaws will be able to roll out small footprint urban concept much faster
9. Moves Loblaw from 31st to 25th largest retailer in the world (Stores.org)

Here is our interview on BNN

Copy of joint Presentation:

ARRANGEMENT AGREEMENT
Between
LOBLAW COMPANIES LIMITED
and
SHOPPERS DRUG MART CORPORATION
July 14, 2013

From Press Release:

Transformational combination brings together two iconic businesses to deliver more choice, value, and convenience to help Canadians live life well

• Combines best-in-class pharmacy and food businesses to create a unique retailer with unmatched capabilities in health & wellness and nutrition
• Loblaw gains powerful footprint in the important and growing small-urban store sector
• Retaining its name and brand, Shoppers Drug Mart will operate as a separate division of Loblaw and expand its product offerings to include Loblaw's private label and convenience food
• Combined company generated, on a 2012 pro forma basis, revenues in excess of $42 billion, EBITDA* of $3 billion, and annual free cash flow* of $1 billion

BRAMPTON AND TORONTO, ON, July 15, 2013 /CNW/ - Loblaw Companies Limited (TSX: L) and Shoppers Drug Mart Corporation (TSX: SC) today announced a definitive agreement under which Loblaw will acquire all of the outstanding Shoppers Drug Mart common shares for $33.18 in cash plus 0.5965 Loblaw common shares per each Shoppers Drug Mart common share, on a fully pro rated basis. Using the Loblaw closing common share price on July 12, 2013, this amounts to $61.54 per Shoppers Drug Mart common share. This price represents a 29.4% premium to the 20-day VWAP of Shoppers Drug Mart common shares as of July 12, 2013.

This strategic union will enhance the companies' competitive positioning in an evolving retail landscape, creating new growth opportunities for shareholders, more and better choices for customers, and greater convenience through Shoppers Drug Mart's footprint in the important and growing small-urban store sector.

Press release