Partnerships between food and pharmacy are becoming more intense. The Jean Coutu Group has announced that it has accepted the offer to acquire Metro.
Transactions in the securities of Jean Coutu and Metro were suspended on Wednesday by the Investment Industry Regulatory Organization of Canada. Then the announcement came. The two retail giants in Quebec said they “hold exclusive discussions with a view to a proposal for a merger by which the Jean Coutu Group’s shares would be acquired by Metro” . The plan provides a price of $ 24.50 per share, payable using a combination of 75% cash, 25% shares of Metro. With close to 184 million Class A and B shares issued, this price brings a value of 4.5 billion to the Group. It contains a premium of 6% compared to the closing on Tuesday.
“This price was determined through negotiations between the parties that preceded the signing of a non-binding letter of intent dated August 22, 2017 … Any final transaction would be subject to regulatory approvals and other customary conditions for a transaction of that type. There can be no assurance that any transaction to implement the combination will be completed and that any conditions to which it is subject will be satisfied ” , it should be noted, adding that ” the parties will not comment further . ” Metro operates some 200 Brunet, Brunet Plus, Brunet Clinique and Clini Plus pharmacies across the province. For its part, the network of Jean Coutu owns 382.
The Coutu family has indicated its intention to support the proposed transaction. According to a table of the Movement for Education and Defense of Shareholders, the founder holds 5% of the approximately 80 million class A subordinate shares (one voting right) and 100% of the 103.5 million class multi-voting shares B (ten voting rights). By bringing the total to the same level, it is concluded that Jean Coutu can express 58.5% of the voting rights.
This grouping was expected. Already, in January 2013, when Metro announced the sale of 48.2% of its investment in Couche-Tard to three Canadian banks for 479 million, it was intended to consider other avenues to reward its shareholders. The acquisition of Jean Coutu appeared in the script. Six months later, analysts wrote that it was “imperative”for the Montreal Metro supermarket chain to acquire, the day after the purchase of the Shoppers Drug Mart pharmacies – Pharmaprix in Quebec – by the Ontario food giant Loblaw. Loblaw’s decision to get hold of the largest chain of pharmacies in the country in exchange for $ 12.4 billion suggests that the obvious thing for Metro is to acquire the Jean Coutu pharmacies, “wrote a CIBC analyst. This Loblaw offer, endorsed in August 2013, received the conditional approval from the Competition Bureau on March 21, 2014.
Since then, after a first attempt failed in 2009, the Canadian subsidiary of the American pharmaceutical giant McKesson has returned to the charge to conclude last May an agreement enabling it to get hold of the 330 pharmacies of the Uniprix Group. By the end of 2016, McKesson Canada had significantly expanded its footprint by completing the acquisition of the $ 2.9 billion chain of 470 Rexall pharmacies. Since it already owns 275 Proxim pharmacies in Quebec, the purchase of Uniprix’s branches allows it to operate a provincial network with more establishments than Jean Coutu, market leader in Quebec.
On the economic front, retailers are facing growing competition from major US chains, such as Walmart and Costco – which house food and pharmacies in their stores.
Credits and Growth
There are also pressures for generic drugs. Like the Jean Coutu Group, the Metro leader had opposed last year Bill 81, which would allow the Government of Quebec to issue tenders for the purchase of generic medicines.
Then, in July, at the shareholders’ meeting, Jean Coutu, a 90-year-old pharmacist and businessman, attacked health minister Gaétan Barrette, blaming him for wanting to recover some 300 million on the back of pharmacists owners. Nevertheless, a compromise was reached in April, when Québec agreed with the Association québécoise des pharmacistes proprietors to end the planned withdrawals from pharmacists’ fees until 2019. The limit on the rate of professional allowances paid by manufacturers of generic drugs has also been re-established at 15%. But the threat of Quebec bidding to bring down the price of drugs continued to weigh heavily.
During the same meeting, the company’s organic growth was discussed at the meeting after a shareholder mentioned that Jean Coutu was stagnating because the chain of pharmacies did not appear not have any acquisition plans.