Loblaw Cos. Ltd., which is offering $61.54 a share to buy Shoppers Drug Mart Corp., initially bid much less – $45 a share – for the drugstore chain in early 2011.
Loblaw increased the bid to $48 a share a few months later, but talks fell apart in June of that year partly because of the grocer’s concerns about the effects of generic drug reforms, which have eaten into drugstores’ profits and forced them to cut costs and shift strategies.
The secret takeover talks might have contributed to the delay in Shoppers’ process of finding a new CEO, which dragged on that year. By October, Shoppers announced that Domenic Pilla would become its chief executive, just months after Vicente Trius became president of Loblaw.
The details of the on-again-off-again talks between Loblaw and Shoppers were revealed in documents that the companies filed on Tuesday about the takeover agreement disclosed on July 15.
The $12.4-billion acquisition, if approved, will help reshape the retail landscape, marrying the two leading players in the grocery and pharmacy retail fields. It also will help the retailers take on intensifying competition in a fast changing market: U.S. discounter Target Corp. is opening its first 124 stores in Canada this year, Wal-Mart Canada Corp. is rapidly expanding its store base and other new entrants, including U.S department-store retailer Nordstrom Inc., are preparing to set up shop here, challenging incumbents.
According to Loblaw’s filing, its executive chairman, Galen G. Weston – feeling more confident about the performance of both Loblaw and Shoppers – returned to the pharmacy chain in March this year with another $48 a share offer, which Shoppers rejected. About a month later, Loblaw raised the bid to $53 a share, which was also turned down.
Buoyed by improved performance and the spinning out of its real estate holdings into an investment trust, Mr. Weston met with Holger Kluge, Shoppers’ chairman, on July 11 with an increased $61.25 bid. The board also approved a subscription by parent George Weston Ltd. for about $500-million of Loblaw shares at $47.55 apiece (the closing price of Loblaw shares on July 12).
“Over the course of May and June, a number of factors led Loblaw’s senior management to begin assessing the feasibility of making a pre-emptive acquisition proposal to Shoppers Drug Mart,” the Loblaw document says. “Those factors included momentum in Loblaw’s core business and its strengthening results, Loblaw’s progress towards executing the REIT, which would enable Loblaw to increase the cash component of any transaction, and Loblaw’s strengthening share price.”
Shoppers will hold a special shareholders meeting on Sept. 12 to approve the takeover, the filings say.
“In an increasingly competitive marketplace, greater scale and deeper capability will enable us to accelerate our momentum and strengthen our position,” Mr. Weston said in the document.