Speculation is mounting that Metro Inc., Loblaw Cos. Ltd. and possibly other potential buyers are gearing up to acquire some choice assets in the Canadian retail space.Peter Power/The Globe and Mail
Speculation is mounting that Metro Inc., Loblaw Cos. Ltd. and possibly other potential buyers are gearing up to acquire some choice assets in the Canadian retail space.
Montreal-based Metro has announced it is selling about half of its stake in convenience-store giant Alimentation Couche-Tard Inc. for after-tax proceeds of about $415-million and several analysts are discussing the possibility the proceeds will be used to make an acquisition.
Safeway Inc.'s Canadian assets are viewed as a potential target, but the names of drugstore chains Familiprix and Jean Coutu Group (PJC) Inc. and B.C. grocery chain Overwaitea are also being bandied about.
Perry Caicco of CIBC World Markets Inc. said in a research note Wednesday that Metro could be filling its war chest in anticipation of more consolidation in the Canadian market.
"The obvious target asset is Safeway Canada, whose prospects as an acquisition we have covered in numerous reports: we believe that it will probably sell in the next 8-12 months and Metro will be competing with Loblaw and Empire for that (very expensive) business," he wrote.
He adds that Safeway would be a "daunting acquisition for Metro, especially since it does not currently have a REIT in which to house Safeway's real estate assets."
Loblaw recently announced plans to spin off its property assets into a real estate investment trust (REIT), fuelling speculation it is preparing for a major acquisition.
Mr. Caicco says it would be more plausible for Metro to go after Jean Coutu.
"The size of the (Couche-Tard) share sale trims Metro's balance sheet enough to lever back up almost perfectly for a purchase of (Jean Coutu)," he said.
Karen Short of BMO Capital Markets Corp. said in a note Wednesday that a bidding war for Safeway Canada is possible.
Safeway Inc. shares rose as much as 9 per cent in trading on the New York Stock Exchange on Wednesday on anticipation of heightened buyer interest in its Canadian assets.
Safeway Canada, which has about 225 stores, has been singled out many times over the past few years as a likely takeover target.
Another potential target recently mentioned by analysts is Overwaitea.
David Hartley of Credit Suisse said in a note he estimates Safeway Canada could fetch $4.2-billion.
Desjardins Securities analyst Keith Howlett said in a research note that Metro management has stated in the past it would not unload Couch-Tard shares until it had decided on an appropriate use of the proceeds.
Possible targets would include Safeway Canada, Overwaitea, Familiprix and Jean Coutu, he said.
Bertrand Marotte