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Wednesday, September 27, 2017

Quebec grocery retailer Metro Inc. and pharmacy retailer Jean Coutu Group are in advanced talks on a possible takeover, the companies have confirmed.

Under the terms currently proposed, Metro would buy Coutu for $24.50 per share in a mix of cash and stock. The two companies say they agreed to the terms in a non-binding letter of intent on August 22, 2017, and that the Coutu family plans to support the deal.

The transaction remains subject to further negotiations, and would ultimately require regulatory approval. Metro and Coutu cautioned in a press release there’s no guarantee a final deal will be reached.

The stocks of Metro Inc. and Jean Coutu Group Inc. were halted Wednesday morning amid speculation that the two Quebec-based retailers were preparing to unveil a merger deal to try to head off the rising squeeze of mounting competitive forces and tough new drug reforms, the Globe and Mail reports.

Drugstores have been feeling the pressure of changes to generic drug regulations which have pinched their bottom lines and hit Quebec retailers the most because of that province's new laws that are expected to have ripple effects across the country, the Globe report says. At the same time, the grocery and pharmacy sectors have seen a string of consolidations, with the most notable being food giant Loblaw Cos. Ltd. acquiring Shoppers Drug Mart Corp. for $12.4-billion in 2014.

Tal Wooley, a principal of equity research at Eight Capital, said consolidating in a maturing industry is a classic strategy when companies face increased power from governments and big insurers, as is the current case for Jean Coutu. "And that is what has been happening whether directly (Loblaw buying Shoppers, McKesson buying Rexall) or indirectly," he said. In the latter case, he referred to Empire Co. Ltd., which owns grocer Sobeys, swallowing rival Safeway Canada in late 2013.

 

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