Brick deal may be just the start for Leon’s
Furniture chain looks at expansion, including possible move into U.S.
Leon’s Furniture Ltd. says its acquisition of rival The Brick Ltd. could be just the first of several buys as the Canadian retailer aims to expand its business, eventually entering the U.S. market.
Calling it “the most ambitious expansion plan in our 103-year history,” Terry Leon, Leon’s president and chief executive officer, said the acquisition of its larger rival is proof not all Canadian retailers are risk-averse.
“Sometimes as Canadians we’re not willing to take the risks necessary to compete in the world,” Leon said during a press conference held at his chain’s most unusual location, the historic railway Roundhouse near Toronto’s CN Tower.
Leon’s announced late Sunday it had an agreement to buy The Brick for $5.40 a share, representing a 62 per cent premium over Friday’s closing price on the Toronto Stock Exchange.
The deal values The Brick at $700 million.
The Brick’s share price leaped 50 per cent to close at $5.32 on the Toronto Stock Exchange Monday. Leon’s shares rose 23 cents to $11.80.
The purchase comes as competition in electronics, appliances, mattresses and furniture heats up while the Canadian economy shows signs of slowing down.
A growing number of retailers compete with both Leon’s and The Brick, from Best Buy and Future Shop to Ikea — and even Canadian Tire, said Ken Wong, a business professor at Queen’s University. “Ikea is the 800-pound gorilla. It’s at the same price point, but has global buying power and efficiencies,” Wong noted. The deal will allow Leon’s to cut costs on everything from sourcing to distribution and invest that back into price, quality, service or new financing programs, Wong said. Leon’s said it isn’t afraid of increased rivalry, noting that Target Corp., the major U.S. chain that is expanding into Canada beginning in March 2013, isn’t even a direct competitor. But the surge in new U.S. retailers coming to Canada has put pressure on the price of land, contractors and top retail talent, noted Leon’s chairman Mark Leon. The Canadian retail landscape is undergoing dramatic change as some stores defend their turf through acquisitions. Canadian Tire Corp. bought The Forzani Group, a Western Canadian sporting goods chain that operates Sport Chek and other brands. Others are shedding uncompetitive banners. Hudson’s Bay Co. sold many of the leaseholds of discount merchandiser Zellers to Target. Meanwhile, Rona’s future remains up in the air after a failed takeover bid from rival home improvement retailer Lowe’s Cos. Even with combined revenues of $2 billion a year, Leon’s and The Brick will have less than 20 per cent of Canada’s largely fragmented furniture market, the companies noted. Both retailers are scheduled to report their quarterly results this week. In the previous quarter, Leon’s earnings dropped nearly 20 per cent on higher marketing costs, while The Brick swung to a $3.1- million loss after redeeming a debenture.
Leon’s repeated on Monday the assurances it gave in its original announcement that it would operate the two chains under separate banners.
The Brick will continue to be run out of Edmonton, where it was founded in 1971, while the Leon’s head office will remain in Toronto.
Together, the two brands can negotiate better deals with suppliers and cut their advertising and marketing costs, the companies said. “With Leon’s, we can become more competitive in an increasingly global industry,” said The Brick’s executive chairman Bill Gregson, who led a dramatic turnaround of the company after it ran into trouble in 2007.
The two began talking in the summer when Terry Leon approached The Brick’s largest shareholder, Prem Watsa, of Fairfax Financial Holdings Inc., a Toronto-based financial services holding company.