Quebec connection
Retail brands Metro, Jean Coutu to combine in $4.5-billion deal
Two of Quebec’s iconic retail brands are planning to merge with Metro Inc.’s $4.5-billion takeover offer for the Jean Coutu pharmacy group.
Shareholders of Jean Coutu (TSX:PJC.A) are being offered a combination of cash and stock worth about $24.50 per share. Three-quarters of the payout or $3.2 billion will be in cash and 25 per cent in Metro shares.
Quebec’s second-largest pharmacy network will operate as a separate division of the grocery company, headed by Francois Coutu, son of the company founder.
Jean Coutu shareholders would own 11 per cent of Metro (TSX:MRU) and the pharmacy chain will appoint two board members.
The chairman and company namesake said the combination will safeguard’s Jean Coutu Group’s entrepreneurial vision and allow it to grow.
“Bringing together our two highly-respected and longstanding Quebec brands represents an exciting milestone in the history of the Jean Coutu Group,” stated Jean Coutu.
Metro chief executive Eric La Fleche said the grocery chain intends to build on the Jean Coutu brand’s legacy.
“It is a unique opportunity to bring together each company’s expertise to better serve the growing consumer demand for healthier choices, value and convenience,” he said in a conference call.
La Fleche said the combined company, which will be a new retail leader in food, pharmacy, health and beauty, will be better able to extend its reach and possible grow in “other geographies.”
Although the purchase price multiple is higher than Metro has paid, La Fleche said it is worth the premium because the Jean Coutu chain is a highperforming business with leading market share in Quebec.
“It’s a unique asset and clearly worth the price we paid,” he told analysts.
The takeover follows Loblaw Companies Ltd.’s (TSX:L) $12.4-billion cash-and-stock deal in 2014 of Shoppers Drug Mart, which operates as Pharmaprix in Quebec.
Canadian supermarket chains are beefing up as they compete against Wal-Mart, Costco and Amazon’s entry in the grocery space with its purchase of Whole Foods.
The companies announced last week that they were in “exclusive discussions” towards a deal to create a grocery-pharmacy group with more than 1,300 stores - in Quebec, Ontario and New Brunswick.
The combined company will have about $16 billion in annual revenues and $500 million in free cash flow, including $75 million in cost savings within three years.
It will employ nearly 87,000 people directly or indirectly through its franchisees and pharmacy owners.
The transaction requires regulatory approvals and support from two-thirds of the votes cast by Jean Coutu Group shareholders at a special meeting to be held in November. The deal is expected to close in the first half of 2018.
The Coutu family and affiliated entities which hold 93 per cent of voting rights, along with company directors and senior officers, have agreed to vote in favour of the deal.
Metro said it plans to sell some or all of its 32.3 million shares in convenience store operator Alimentation CoucheTard (TSX:ATD.B) over time to reduce its debt.