Loblaw Companies to buy Shoppers Drug Mart for $12.4 billion

Brampton and Toronto, Ont. – Loblaw Companies Limited has announced it will acquire Shoppers Drug Mart Corporation for $12.4 billion.

The companies announced the deal on July 15.

The “partnership,” says Galen G. Weston, executive chairman of Loblaw, “changes the retail landscape in Canada.”

During an early conference call, Weston went onto explain that the acquisition is more about the joining of complimentary businesses.

“Loblaw has about five per cent share in the pharmacy business. So in that sense an addition to Shoppers Drug Mart is not profound, doesn’t profoundly change the market-share numbers. We’re a $30 billion food business and Shoppers has somewhere in the range of $1 billion in food. So this is a complimentary transaction about leveraging existing strengths and retail assets as opposed to the combination of fundamentally overlapping sales bases.”

The move is also about seizing on important trends in society and retail, from the emphasis on health, wellness and nutrition, to the rise in value and convenience.

The deal includes 1,200 Shoppers Drug Mart stores across Canada, many of them small-urban stores. Shoppers Drug Mart will continue to operate as a separate company and will keep the name.

During the conference call, Weston explained that the deal was in the works for three-and-a-half years before the announcement today.

Holger Kluge, chair of the board of directors for Shoppers Drug Mart, adds that during that time Shoppers had many discussions with Galen, but also with several other players.

In fact, Shoppers had been approached by other companies and had reached out to a number of firms as well.

“In the end, this happened to be the right time when these two minds came together and came together quickly at the right price for our shareholders,” says Kluge.

“We looked at many combinations over the last few years, solicited and unsolicited,” he adds.

Before the deal became final, Shoppers Drug Mart had conducted an in-depth study on what the food retail side of the proposition would look like.

Domenic Pilla, president and CEO of Shoppers, says they developed a mock-up store to see how they could leverage the space they use in their stores for food products.

Pilla says they concluded they could put a compelling offering together with fresh and ready meals, frozen and convenience foods and healthy products – offering also President’s Choice, Blue Menu and No Name products.

“Where consumers could go into a Shoppers store and be able to do a very basic food grocery shop. From our perspective we had clearly identified an opportunity,” he says.

“We absolutely like the combination of food and health, nutrition and health. It drives traffic and it’s something that has been very accretive to us. But as we identified the opportunity of what the consumer wants in our food offering, we knew we didn’t have the capability and certainly not the access to sources of supply that a Loblaws has. And so the combination of bringing their capability and access to products against what we see as a strong customer need and demand we see as a winning combination.”

Just last week, Loblaw also announced that it would be experimenting with a new retail concept, reports CBC.ca, aimed at health-conscious consumers called Nutshell Live Life Well beginning this fall.

The pilot location, in Toronto, will offer fresh and natural healthy food, vitamins, health and wellness services, beauty products and a pharmacy.