Loblaw bids to expand health-care portfolio
Offers $170M for Kelowna-based QHR Corp. to work with Shoppers
Loblaw Cos Ltd. is planning to expand its growing presence in the health-care industry, proposing a $170-million, all-cash friendly bid to buy a B.C.-based company that develops electronic medical record technology.
The country’s largest food retailer offered $3.10 cash per share for Kelowna-based QHR Corp. — or 22 per cent over the stock’s price on the TSX Venture Exchange at Friday’s close — saying it will be a “natural complement” to its Shoppers Drug Mart division.
Loblaw purchased Shoppers, Canada’s largest retail network of pharmacies, in 2014 for $12.4 billion.
A shareholder vote on the QHR deal will require two-thirds approval, and is expected to take place at a QHR special shareholder meeting in October. It already has the approval of QHR’s board of directors. QHR chief executive Mike Checkley said exclusive negotiations began two weeks ago following an unsolicited offer from Loblaw.
“We weren’t out to sell the company,” he said on an investor conference call. “What came across the table we felt was very fair and we feel this is absolutely the right arrangement for us and our customers.”
The deal does allow QHR to consider other offers, and comes with a $6-million break fee if one is accepted.
If approved, the acquisition would give Loblaw a foothold with the 7,700 health care providers QHR currently supports with its suite of electronic medical records technology — that business accounts for 20 per cent of the Canadian electronic health record market, worth approximately $350 million a year, according to Cantor Fitzgerald analyst Ralph Garcea.
“We recognize that the future of health care is digital and this strategic investment will make us a better health and wellness partner to patients and providers,” said Loblaw spokeswoman Tammy Smitham. “QHR brings complementary talent and technology to our organization, providing opportunities to establish new business partnerships and drive improved care co-ordination for Canadians.”
Smitham said that Loblaw has no short-term plans to change the way its pharmacy business operates — but that the company is hopeful the acquisition will in the long term make its patient care more efficient, and allow it to work with more health care providers beyond the pharmacy niche. In recent years, retailers including Shoppers have added medical services, notably dispensing flu shots and prescription renewal services, as governments have sought to regulate the professional allowances pharmacies receive from drugmakers.
RBC Dominion Securities analyst Irene Nattel said in a note that the QHR acquisition will have negligible impact on Loblaw’s results but should fit alongside the company’s existing pharmacy and health care operations.
QHR’s shares climbed 22 per cent to close at $3.10 on the TSX Venture Exchange Monday. Loblaw shares were up one per cent, closing at $71.81 in Toronto.
Loblaw has looked to its Shoppers division to deliver new avenues for earnings growth, as competition for sales volume in its grocery business has expanded beyond traditional competitors such as Metro Inc. and Sobeys to include big-box retailers Costco Wholesale Corp. and Walmart Canada.
The Shoppers acquisition in 2014 gave Loblaw access to smallersized stores in high-density urban neighbourhoods, from which Walmart and Costco remain largely removed. Following the introduction of increased food and grocery offerings at its drugstores, revenue growth at Shoppers Drug Mart outpaced other parts of the company’s business in the second quarter.
In July, Loblaw reported its net profit fell almost 15 per cent in the quarter from 2015. Its net income was $158 million or 39 cents per share for the three months ending June 18.