UPDATE 1-Loblaw to buy Shoppers Drug Mart for C$12.4 bln
July 15 (Reuters) - Loblaw Cos Ltd, Canada's largest food retailer, will buy Shoppers Drug Mart Corp for C$12.4 billion ($11.9 billion), as it faces increasing competition from Target Corp and Wal-Mart Stores Inc .
By acquiring Canada's biggest pharmacy chain, Loblaw said it would create a retail giant with more than C$42 billion in revenue and gain access to the growing small-urban store sector.
Loblaw's offer of C$61.54 in cash and stock represents a premium of 27 percent to Shoppers Drug Mart's Friday closing on the Toronto Stock Exchange.
Shareholders of Shoppers Drug Mart will have the option to either receive C$61.54 in cash or 1.29417 Loblaw common shares plus C$0.01 in cash for each share held. The maximum amount of cash to be paid by Loblaw will be about C$6.7 billion.
Shoppers Drug Mart shareholders will own about 29 percent of the combined company. Shoppers Drug Mart will retain its name and brand and will operate as a separate division of Loblaw.
The combination is expected to yield annual cost synergies of C$300 million by the third year, Loblaw said in a statement on Monday.
"With scale and capability, we will be able to accelerate our momentum and strengthen our position in the increasingly competitive marketplace," said Loblaw Executive Chairman Galen Weston.
George Weston Ltd, Loblaw's biggest shareholder, has entered into a voting agreement in support of the deal.
BofA Merrill Lynch acted as financial adviser to Loblaw, while Torys LLP was its legal counsel.
RBC Capital Markets advised Shoppers Drug Mart on the deal. Osler, Hoskin & Harcourt LLP was its legal counsel.