‘A new type of retail market’: Loblaw-Shoppers deal clears competition review

Approximately eight months after the deal was announced, the Competition Bureau has finally cleared the blockbuster $12.4-billion merger between Loblaw and Shoppers Drug Mart — pending some concessions.

The Competition Bureau handed down its judgement Friday. As part of the deal, Loblaw agreed to sell 18 stores and nine pharmacies to an independent operator. The Bureau also imposed “behavioural restrictions” on certain Loblaw programs and agreements to alleviate concerns that the merger “would likely lead to higher wholesale prices paid by other retailers to suppliers and, in some circumstances, higher retail prices for consumers.”

Robert Russell, a competition partner leading the deal for Borden Ladner Gervais LLP, which is representing Loblaw, said the Bureau looked at 1200 stores in 800 markets to size up the deal.

The deal — which from its infancy was conceived in a minivan north of Toronto where Loblaw Executive Chairman Galen Weston and Shoppers Drug Mart Chair Holger Kluge shook hands over the idea — was lauded as one that benefits consumers and the shareholders of both companies. (Indeed, Shoppers’ and Loblaw’s stock soared after the announcement.) Investors saw massive value coming out of the deal: In 2012, both companies made revenues of $42 billion, well surpassing Wal-Mart in Canada, one of Loblaw’s major retail rivals. In September 2013, shareholders for both companies agreed to the merger.

The merger will also create co-branding opportunities, such as private labels and loyalty programs. The Globe‘s Michael Babad says the merger also creates “something no one can rival — the king of ‘Health, Wellness and Nutrition.'”

When at one time Wal-Mart was seemingly the only store where you could purchase a lawnmower, milk and eggs and some khakis, Loblaw is staking its claim to something similar: A place where you can shop for a range of products and supplies, such as groceries and pharmaceuticals, that would otherwise require a consumer to make several trips to different retailers.

Russell says this is a new type of retail market, one that is “full-service.”

“(The deal) strategically allows Loblaw into these urban markets, providing them a new urban offering,” he says, adding that it’s a “good competitive response” to Wal-Mart.

The deal is expected to close March 28.

Shares of Loblaw rose $1.30 to $47.52, while Shoppers shares rose 88 cents to $61.49.

Torys LLP is representing Loblaw with a team including Peter JewettCornell Wright, Raegan Kennedy, Adrienne DiPaolo and David Forrester (M&A), Tom ZverinaAdam Delean and Adrienne Glen (lending), James C. Tory and Andrew Gray(litigation), Mitch Frazer and Lynne Lacoursière (pension & employment), Jay Holsten and Omar Wakil (competition), Conor McCourt (intellectual property) and John Unger (tax). Borden Ladner Gervais LLP is also representing Loblaw on competition matters with a team including Rob Russell, Denes Rothschild, Zirjan Derwa, Neil Morgan and Jon Asselstine.

Osler, Hoskin & Harcourt LLP is serving as counsel to Shoppers Drug Mart with a team including Clay HornerDouglas Bryce,Emmanuel PressmanDonald Gilchrist, David Vernon, and Alex Gorka (corporate); Peter Glossop and Shuli Rodal (regulatory); Firoz Ahmed, Amanda Heale and Dov Begun (tax).

Davies Ward Phillips & Vineberg LLP is acting for Bank of America Merrill Lynch as lender and financial advisor to Loblaw with a team including Patricia Olasker and Steven Harris (corporate); and Carol Pennycook and Derek Vesey (financing).

All team lists and names are from the July 15, 2013 announcement, thus no lawyer moves since have been noted here.

Ahmad Hathout 

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