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Loblaw Acquires Shoppers Drug Mart for $11.93B

The combined entity will generate more than $40.39 billion in annual revenues and operate 2,348 stores.

Canada’s Shoppers Drug Mart has been sold to Galen G. Weston’s Loblaw Cos. Ltd. for $11.93 billion in a cash and stock transaction.

This story first appeared in the July 16, 2013 issue of WWD.  Subscribe Today.

Often considered the bellwether for retailing premium brands in drug stores, Shoppers Drug Mart will retain its name and brand, but operate as a separate division of Loblaw.

The transaction, valued at 12.4 billion Canadian dollars, or $11.93 billion, combines the best-in-class pharmaceutical retailer with the supermarket chain. All conversion amounts are at current exchange. Under the terms of the deal, Loblaw will acquire all of the outstanding Shoppers Drug Mart common shares for $31.91 in cash plus 0.5965 Loblaw common shares for each Shoppers Drug Mart common share on a fully pro-rated basis. Using the Loblaw closing common share price on July 12, the value for Shoppers Drug Mart on a per-share value is $59.18. The total combined consideration is 53.9 percent cash and 46.1 percent stock.

With its acquisition of Shoppers Drug Mart, Loblaw gains instant access to what many consider the best drugstore beauty retailer in North America. Additionally, Shoppers Drug Mart brings more than 10 million ardent participants in its Shoppers Optimum loyalty program and entry to small, urban market stores, which can combine beauty and Loblaw’s convenient food offering. All of these moves help fortify the combined company against new retail invaders, especially Target, which is growing aggressively in Canada, as well as stepped-up competition from homegrown Sobey’s, which recently bought Canada’s Safeway stores.

Shoppers Drug Mart will open the second of its newest beauty prototype in a store in Toronto featuring premium brands Chanel and Yves Saint Laurent, a fragrance testing bar, digital signing and brand agnostic beauty advisers. The new beauty department is 25 percent larger than existing formats and has been re-branded under the name BeautyBoutique by Shoppers Drug Mart.

Weston, executive chairman of Loblaw, said, “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.”

Weston added that the combination “creates a compelling new blueprint for the future, positioning us to capitalize on important trends in society, from the emphasis on health, wellness and nutrition to the imperatives of value and convenience.”

Domenic Pilla, president and chief executive officer of Shoppers Drug Mart, will continue to lead the management team.

Pilla said, “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.”

On a pro forma basis, the combined company generated in excess of $40.39 billion in revenue last year. “The transaction is expected to lead to double-digit accretion, adjusted for intangible amortization, in Loblaw earnings per share in the first year,” Loblaw said. It expects annual cost synergies of $288.5 million by year three, with the synergies not dependent on any store closings.

If the two were viewed together, the entity would have 1 billion transactions, 2,348 stores and 62 million square feet of selling space.