TORONTO — Canada's largest supermarket chain said Monday that it has agreed to purchase the country's biggest pharmacy chain for $11.9 billion (CA$12.4 billion) in cash and stock.
Loblaw Companies Ltd. said that by buying Shoppers Drug Mart Corp. it would create a retail giant with more than $40 billon (CA$42 billion) in revenue and gain access to the growing small-urban store sector.
"I have long believed that the next chapter for growth at Loblaw should be based in a vision that combined health, wellness and nutrition. Loblaw combining with Shoppers Drug Mart is the ultimate expression of that vision," said Galen Weston, executive chairman of Loblaw, in a conference call with analysts Monday.
"Not only does this transaction make compelling financial sense, it establishes a truly innovative platform for the future," Weston said.
The offer is worth $59.22 (CA$61.54) per Shoppers Drug Mart common share – about 29 percent above the recent average trading price for the Shoppers stock – with about 54 percent of the price paid in cash.
Loblaw is offering $31.93 (CA$33.18) in cash plus about six-tenths of a Loblaw share for each Shoppers Drug Mart common share.
Shoppers shares were up $12.22 (CA$12.70), or about 26 percent, at $58.80 (CA$61.10), while Loblaw shares were up $3.32 (CA$3.45), or about 7 percent, at $49.08 (CA$51) on the Toronto Stock Exchange in morning trading.
Under the terms of the agreement, which is still subject to approvals, Shoppers will keep its brand name and operate as a separate division of Loblaw.
However, Weston and other executives of the two companies said they anticipate cross marketing of each company's products – specifically mentioning the Loblaw President Choice and Blue Menu brands and Shopper's Life brands – as well as services such as their loyalty points programs.
Canadian retailers have faced increasing competition from large U.S. chains, such as Target, which began to roll out its stores across the country earlier this year. It joins Walmart and Costco, and as well as domestic retailers such as Sobeys that offer a combination of merchandise, pharmacy products and groceries.
The deal will require approval by at least two-thirds of the votes by Shoppers Drug Mart shareholders at a special meeting expected to take place in September.
A majority of Loblaw shareholders must also approve the deal because of the number of shares being issued.
Domenic Pilla, president and CEO of Shoppers Drug Mart, said the deal provides "significant and immediate value" for Shoppers shareholders who will receive up to $6.45 billion (CA$6.7 billion) of cash and 119.9 million Loblaw shares.
Pilla and the Loblaw executives told analysts that they don't anticipate any store closings as a result of this transaction and they endorsed the current use of associate owners at Shoppers Drug Mart.