Loblaw Cos Ltd, Canada's biggest food retailer, today said that it will spend C$12.4 billion ($11.9 billion) to buy the country's largest pharmacy chain Shoppers Drug Mart Corp in order to better compete with Wal-Mart Stores and Target Corp.
Loblaw, the 94-year old food retailer, is offering to pay $33.18 in cash plus 0.5965 in shares for a total of C$61.54 per share, representing a premium of 27 per cent to Shoppers Drug Mart's Friday closing on the Toronto Stock Exchange.
Post closing, Shoppers Drug Mart shareholders will own about 29 per cent of the combined company.
The proposed friendly merger will create a company with annual revenues in excess of $42 billion, EBITDA of $3 billion, annual free cash flow of $1 billion and achieve synergies of $300 million by the third year.
Founded in 1962 by pharmacist Murray Koffler, Toronto-based Shoppers Drug Mart is Canada's leading health, beauty and convenience retailer.
Shoppers Drug Mart Corporation operates more than 1,240 retail drug stores under the Shoppers Drug Mart/Pharmaprix brand. The company also operates 59 medical clinic pharmacies under the Shoppers Simply Pharmacy brand and six luxury beauty chains under the Murale brand.
It also operates 62 Shoppers Home Health Care stores, which sell assisted-living devices, medical equipment, home-care products and durable mobility equipment to institutional and retail customers.
In addition to its retail store network, the company owns Shoppers Drug Mart Specialty Health Network Inc, a provider of specialty drug distribution, pharmacy and comprehensive patient support services, and MediSystem Technologies Inc, a provider of pharmaceutical products and services to long-term care facilities.
With fiscal 2012 sales of $10.8 billion, the company holds a significant share of the market in front store merchandise, including over-the-counter medications, health and beauty aids, cosmetics and fragrances, seasonal products and everyday household essentials.
"This transformational partnership changes the retail landscape in Canada. With scale and capability, we will be able to accelerate our momentum and strengthen our position in the increasingly competitive marketplace," said Galen Weston, executive chairman of Loblaw.
"We are delighted to partner with Loblaw 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. And for our customers, it provides more locations with an enhanced mix of products and offerings that contribute to the good health of Canadians," said, Domenic Pilla, president and CEO of Shoppers Drug Mart.
Post closing, Shoppers Drug Mart will operate as a separate division of Loblaw, and run by its current management team led by Pilla.
The transaction, which is expected to be completed within six to seven months, will require the approval of at least 66 per cent of the votes cast by the shareholders of Shoppers Drug Mart at a special meeting expected in September.
The agreed deal provides that Shoppers Drug Mart will not solicit offers, but will pay Loblaw termination fee of $300 million if it agrees to a unsolicited superior proposal, subject to Loblaw having the right to match the offer.
Loblaw, a subsidiary of George Weston Limited, is Canada's largest food retailer and a leading provider of drugstore, general merchandise and financial products and services.
With more than 1,000 stores, Loblaw is one of the largest private sector employers in Canada employing around 134,000 people.