Loblaw to buy Shoppers Drug Mart for C$12.4 billion

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Loblaw Cos., Canada's largest food retailer, will buy Shoppers Drug Mart for C$12.4 billion ($11.9 billion), as it faces increasing competition from Target and Wal-Mart Stores.

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.

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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.

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George Weston Ltd., Loblaw's biggest shareholder, has entered into a voting agreement in support of the deal.

Bank of America/Merrill Lynch acted as financial adviser to Loblaw, while Torys was its legal counsel.

RBC Capital Markets advised Shoppers Drug Mart on the deal. Osler, Hoskin & Harcourt was its legal counsel.