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DSW Set to Acquire Stake in Canadian Chain

Firm agrees to buy 44% of Town Shoes for about $62 million.

DSW Inc. has agreed to acquire a minority stake in Canada’s Town Shoes Ltd. with the option to acquire the remaining shares.

In a move that will provide a base for DSW to expand its brand into Canada, the U.S. retailer has agreed to acquire 44 percent of Town’s shares for a cash consideration of 68 million Canadian dollars, or $62 million at current exchange. Based in Toronto, Town operates 182 stores in Canada under banners including The Shoe Co., Shoe Warehouse and Town Shoes. Its 2013 sales totaled 291 million Canadian dollars, or $280.5 million at average exchange.

The agreement gives DSW the right to acquire shares from certain minority shareholders immediately and the balance of the Canadian firm’s shares after four years at a pre-determined multiple of earnings before interest, taxes, depreciation and amortization.

The majority of Town’s shares currently are owned by Alberta Investment Management Corp. and Callisto Capital, a Canadian private equity firm. DSW’s initial stake, which would come from Alberta Investment’s shares, provides for 50 percent voting control and board representation, equal to that of Callisto.

Callisto has the right to sell the balance of the company to DSW after three years, also at a pre-determined ebitda multiple.

“We have looked at Canadian entry options for some time and decided to acquire an existing operation with a long track record of success and to use this operation as a base from which we can establish the DSW brand in Canada,” said Mike MacDonald, president and chief executive officer of Columbus, Ohio-based DSW.

Peter J. Solomon Co. advised DSW on the transaction, which is expected to be “slightly accretive” to DSW’s 2014 earnings. 

Calling Alberta Investment “a great partner,” Lawrence Stevenson, chairman of Town and managing director of Callisto, said DSW would be a strong strategic partner “as we roll out DSW stores across the country.”

Canada has become a prime expansion spot for American retailers. Target Corp. initiated its expansion into Canada with the acquisition of lease rights to Zellers stores previously owned by Hudson’s Bay Co. Other U.S. retailers, including Nordstrom and Hudson’s Bay Saks subsidiary, are moving into the country through new stores and conversions of existing retail space.

DSW currently operates 407 DSW stores in 42 states, Washington and Puerto Rico, the e-commerce site dsw.com and the mobile Web site m.dsw.com. Its affiliate business group also provides footwear to 357 leased locations.