Loblaw Buys Shoppers Drug Mart for $11.9 Billion

Deal of the Week: Loblaw buys Shoppers Drug Mart for $11.9 billion

Announcement Date • July 15, 2013 Acquirer • Loblaw Companies Limited (TSX:L) Acquirer Description • Operates as a food retailer; and provides drugstore, general merchandise, and financial products in Canada and the U.S. • Incorporated in 1956 and headquartered in Brampton, Canada. It is a subsidiary of George Weston Limited Target • Shoppers Drug Mart Corporation (TSX:SC) Target Description • Licenses retail drug stores operating under the Shoppers Drug Mart and Pharmaprix names in Canada • Founded in 1962 and headquartered in Toronto, Canada Target Financial Stats • Mkt Cap: $ 9.4 billion • LTM EBITDA: $1.2 billion • EV: $ 10.5 billion • EV/LTM EBITDA: 8.8x • LTM Revenue: $10.6 billion • LTM P/E: 15.7x Price / Consideration • Price: $11.9 billion • Consideration: Cash and Stock Buyer / Target Advisor • Bank of America Merrill Lynch • RBC Capital Markets Rationale • The companies said that combined they would be better able to compete against U.S. retail giants such as Target and Wal-Mart, which are increasingly encroaching upon Canadian territory • The deal combines best-in-class pharmacy and food businesses to create a unique retailer with unmatched capabilities in health & wellness and nutrition Deal Points • Canadian grocery giant Loblaw said Monday it would acquire Shoppers Drug Mart in a C$12.4 billion ($11.9 billion) deal, designed to fortify the company against increasing competition from U.S. rivals • Loblaw will pay C$33.18 ($31.86) in cash and 0.5965 shares for total consideration of C$61.54 ($59.09) per share, a premium of 29.4% to the 20-day VWAP of the target’s common shares as of July 12, 2013 • Shoppers Drug Mart shareholders will have the ability to choose whether to receive C$61.54 ($59.09) in cash or 1.29417 Loblaw common shares plus $0.01 cash for each Shoppers Drug Mart share held • The maximum amount of cash to be paid by Loblaw will be approximately C$6.7 billion ($6.4 billion) and the maximum number of Loblaw common shares to be issued will be approximately 119.9 million • Post-deal Shoppers holders would own about 29% of the combined company, which would generate about C$42 billion ($40 billion) in annual sale, C$3 billion (2.9 billion) in EBITDA, and C$1 billion ($960 million) in annual free cash flow