LOBLAW COMPANIES LTD. $46 (Toronto symbol L; www.loblaw.ca) announced yesterday that it has a friendly deal to purchase Shoppers Drug Mart Corp. (Toronto symbol SC) for $12.4 billion in cash and stock. The transaction, which combines Canada’s largest grocery and pharmacy chains, will be the biggest takeover in Canadian retail history.
Shares of Loblaw rose 5% yesterday on the news. Loblaw had already risen 42% for us since its announcement in December 2012 that it would set up 75% of its real estate holdings as a publicly traded real estate investment trust (REIT) under the name Choice Properties REIT (Toronto symbol CHP.UN).
In this Friday’s Email/Telephone Hotline to subscribers of The Successful Investor, we’ll look at whether the Shoppers Drug Mart deal will give Loblaw a commanding advantage over its competitors in the supermarket industry and whether Loblaw’s shares can keep on rising. We will conclude with our clear buy-sell-hold advice on the stock.
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Canadian stocks: Loblaw seeks to sharpen competitive edge with store upgrades in Quebec and test store in Calgary
Loblaw is also moving forward with other initiatives to improve profits. It is spending $100 million to upgrade its 77 Provigo and 32 Loblaw supermarkets in Quebec. That’s equal to 58% of its 2013 first quarter earnings of $171 million, or $0.61 a share.
These improvements include faster checkout lines, a better selection of fresh products, and the addition of on-site baked bagels and juice bars. In addition, the company will rebrand six of its existing Loblaw stores, plus one under construction, as Provigo Le Marché.
Loblaw is also testing a new store format in Calgary that is much smaller than its other supermarkets. This store, called The Box by No Frills, is just 10,000 square feet, compared to 25,000 square feet for its regular stores. Smaller stores like this would help Loblaw expand in urban areas. They would also help it compete with non-traditional food sellers, such as drug stores and convenience stores.
As mentioned, in this Friday’s Hotline for The Successful Investor, we will offer our clear advice on how this history-making deal with Shoppers Drug Mart will affect Loblaw’s prospects and its share price. And you will get Pat’s buy-sell-hold advice on Loblaw’s stock.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
Do you think this takeover will improve Loblaw’s chances of competing against Wal-Mart and Target in Canada? Can you think of another merger between Canadian retailers that would make sense for shoppers and investors? Let us know what you think.
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