Canadian Big Deals
Loblaw / Shoppers Drug Mart; Hudson's Bay / Saks Incorporated; Davis + Henderson / Harland Financial Solutions; Louisiana-Pacific / Ainsworth Lumber
Loblaw / Shoppers Drug Mart
Canada's Loblaw Companies Limited, owner of the Loblaws grocery chain, hopes its $12.4 billion takeover of Shoppers Drug Mart is a prescription for a variety of challenges in the retail food sector. The deal was announced July 15, about a month after Sobeys—a major challenger to Loblaws' mantle as Canada's largest grocer—bought the Canadian assets of Safeway, including 199 in-store pharmacies.
The move to acquire Shoppers, an iconic Canadian brand, is significant in the consolidating grocery and retail pharmacy sectors. Increased competition from retailers such as Walmart and Target has squeezed margins for traditional players such as Loblaws, Sobeys and Metro, the other major Canadian grocery chain.
Loblaw will pay $61.54 a share for Shoppers, a 29.4 percent premium to Shoppers' preannouncement trading average. About 54 percent of the deal is cash, and the rest is funded in Loblaw shares. When the deal closes, Shoppers shareholders will own 29 percent of Loblaw, with George Weston Limited owning 46 percent, after acquiring an additional $500 million in Loblaw shares; the funds from that deal will help to pay for the Shoppers acquisition. Shoppers shareholders approved the deal in September, but it still requires regulatory approval.
Shoppers Drug Mart will continue to operate as a stand-alone brand and a separate division of Loblaw, although Loblaw said it will capitalize on $300 million in efficiencies and cross-marketing opportunities over the next three years that come with adding 1,200 retail pharmacies to its 1,400 stores. Combined, the two chains are a retail juggernaut, with 2012 sales of $42 billion.
For acquirer Loblaw Companies Limited (Brampton, Ontario)
Borden Ladner Gervais: Competition: Robert Russell, Brendan Wong and associates Denes Rothschild and Zirjan Derwa. (They are in Toronto.)
For Loblaw controlling shareholder George Weston Limited
In-House: executive vice-president and chief legal officer Gordon Currie.
Torys: Corporate/M&A: Peter Jewett and Cornell Wright. Litigation: James C. Tory and associates Adrienne DiPaolo, David Forrester, William Hooper and Reagan Kennedy. Securities: Andrew Gray and Glen Johnson. Pensions and benefits: Mitch Frazer and associates Andrew Gray and Lynne Lacoursiere. Antitrust: Jay Holsten, Omar Wakil and associate Arezor Farivar. Intellectual property: Conor McCourt. Tax: John Unger. Finance: Amanda Balasubramanian, Adam Delean and Adrienne Glen. (They are in Toronto.) Torys has represented George Weston Limited since the early 1990s.
For target Shoppers Drug Mart Corporation (Toronto)
In-House: Executive vice-president–legal affairs and general counsel Frank Pedinelli and corporate secretary and senior vice-president of legal affairs Adam Grabowski.
Osler, Hoskin & Harcourt: Corporate/M&A: Douglas Bryce, Donald Gilchrist, Clay Horner, Emmanuel Pressman and associates Alex Gorka and David Vernon. Competition: Peter Glossop and Shuli Rodal. Tax: Firoz Ahmed, Dov Begun and associate Amanda Heale. (They are in Toronto.) Osler has a long-standing relationship with Shoppers Drug Mart, dating back to Shoppers' acquisition by the Imasco conglomerate in 1983, its subsequent sale to a consortium of institutional investors including Kohlberg Kravis Roberts & Co. in 2000 as part of the breakup of Imasco, and its initial public offering and listing on the Toronto Stock Exchange in 2001. —L.K.
Hudson's Bay / Saks Incorporated
Manhattan's Fifth Avenue is going to get a major Canadian presence, with the $2.9 billion purchase by Hudson's Bay Company (HBC) of luxury retail chain Saks Inc. Hudson's Bay is the oldest company in North America, with roots dating back to 1670 as a fur trader. Saks is the latest U.S. acquisition for HBC; it bought Lord & Taylor about a year ago and features the Lord & Taylor clothing and home accessories brands in its department stores across Canada. HBC also operates a chain of department stores in Canada under its own name.
HBC, which was acquired five years ago by private equity firm NRDC Equity Partners for $1.1 billion, will pay $16 in cash per share for Saks in the friendly deal, a premium of about 30 percent over Saks' average share price in May, before rumors of the deal spilled into the business media.