This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

The Deal: Loblaw and Shoppers Drug Mart In $12B Merger

NEW YORK (The Deal) -- Canadian grocery giant Loblaw Cos. Ltd said Monday it would acquire Shoppers Drug Mart Corp. in a C$12.4 billion ($11.9 billion) deal designed to fortify the company against increasing competition from U.S. rivals.

Terms of the deal call for Brampton, Ontario-based Loblaw to pay C$33.18 in cash and 0.5965 shares for total consideration of C$61.54 per share, a premium of 27% to the target's Friday close on the Toronto Stock Exchange. Shoppers stockholders will have the option to take cash or stock, with the maximum amount of cash to be paid by Loblaw capped at about C$6.7 billion.

Post-deal Shoppers holders would own about 29% of the combined company, which would generate about C$1 billion in annual free cash flow, C$3 billion in EBITDA and C$42 billion in annual sales. The companies said that combined they would be better able to compete against U.S. retail giants such as Target Corp. (TGT) and Wal-Mart Stores Inc. (WMT), which are increasingly encroaching upon Canadian territory.

Toronto-based Shoppers operates 1,242 retail drugstore locations under the Shoppers Drug Mart and Pharmaprix brands, and also licenses or owns 57 medical clinic pharmacies and owns 52 home healthcare stores. Loblaw already ranks as the largest food retailer in Canada, with more than 1,000 stores and 134,000 full and part-time employees.

The deal "changes the retail landscape in Canada," Loblaw CEO Galen G. Weston said in a statement, adding that the deal should "strengthen our position in the increasingly competitive marketplace." Shoppers would retain its brand and boost Loblaw's footprint in the small-urban store sector. "This 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," Weston said. The deal comes just a week after a large U.S. grocery deal, Kroger Co.'s (KR) $2.44 billion purchase of Harris Teeter Supermarkets Inc. (HTSI)

Loblaw said it would finance the deal with cash on hand and committed bank facilities including a C$3.5 billion term loan and C$1.6 billion bridge loan fully underwritten by BofA Merrill Lynch, Pierce, Fenner & Smith Inc., Bank of America NA, Canada branch and Bank of America NA (BAC). George Weston Ltd., Loblaw's controlling shareholder, has entered into a voting agreement to support the deal and will buy $500 million worth of common shares to help finance the purchase.

The company said it expects to shave C$300 million in annual costs within three years of closing, and said free cash flow should help it to quickly pay down its debts and maintain its current rating.

Bank of America Merrill Lynch, Torys LLP and Borden Ladner Gervais LLP are advising Loblaw. Shoppers Drug Mart received financial advice from RBC Capital Markets LLC and legal counsel from Osler, Hoskin & Harcourt LLP.

Written by Lou Whiteman

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,960.57 -123.23 -0.72%
S&P 500 1,978.34 -9.64 -0.48%
NASDAQ 4,449.5640 -22.5440 -0.50%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs