Shoppers Drug Mart Corp. plans to hold a special meeting on Sept. 12 for shareholders to vote on the company's proposed acquisition by Loblaw Cos.

Shoppers Drug Mart, Loblaw, acquisition, Canada's largest drug chain, Canada's biggest supermarket retailer, Galen Weston, Vicente Trius, Domenic Pilla

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Shareholder vote set on SDM-Loblaw deal

August 21st, 2013

TORONTO – Shoppers Drug Mart Corp. plans to hold a special meeting on Sept. 12 for shareholders to vote on the company's proposed acquisition by Loblaw Cos.

Canada's largest drug chain said late Tuesday that it has posted the management proxy circular for the vote on the $12.4 billion (Canadian) deal on its website.

Loblaw, Canada's biggest supermarket retailer, also reported Tuesday that it has filed an information statement on the acquisition proposal, announced in mid-July, with the Toronto Stock Exchange (TSX).

Under the transaction, Loblaw plans to acquire all outstanding Shoppers Drug Mart common shares for $33.18 in cash plus 0.5965 Loblaw common shares for each Shoppers Drug Mart common share, amounting to $61.54 per Shoppers Drug Mart common share. This represents 29.4% premium to the 20-day volume-weighted average price of Shoppers Drug Mart shares as of July 12.

The deal must be approved by at least two-thirds of Shoppers Drug Mart shareholders, as well as by the Ontario Superior Court of Justice. The drug chain's board has voted unanimously in favor of the transaction.

Food processor and distributor George Weston Ltd., Loblaw's controlling shareholder, has voting ownership of about 63% of Loblaw's common shares and has notified the TSX that it is in favor of the transaction, which satisfies the shareholder approval requirements of the exchange, Loblaw reported.

After the deal is completed, which is expected before the end of the 2014 first quarter, Weston will have voting ownership of about 46% of Loblaw's common shares, and Shoppers Drug Mart shareholders will own approximately 29% of the combined company.

"Bringing together two of the most recognized and trusted names in Canadian retailing to create the leading Canadian retailer, we will leverage each other's strengths to capitalize on the two most important demographic trends driving the Canadian consumer for the foreseeable future — urbanization and health, wellness and nutrition. We also believe that the combination will transform the Canadian retail landscape by delivering more choice, service, value and convenience for consumers," executive chairman Galen Weston said in a letter to shareholders in the Aug. 20 Loblaw information statement on the acquisition.

"In an increasingly competitive marketplace, greater scale and deeper capability will enable us to accelerate our momentum and strengthen our position. The numbers are compelling: If the companies had been combined in 2012, on a pro forma basis they would have undertaken over 1 billion customer transactions in 2,348 retail stores, generated over $42 billion in revenue and over $3 billion in EBITDA, and had free cash flow of approximately $1 billion," Weston stated.

Together, Loblaw and Shoppers Drug Mart will have 1,797 pharmacies.

Weston added, "The combined company will have the strongest management team in the industry, led by Vicente Trius, president of Loblaw. We plan to operate Shoppers Drug Mart as a distinct division, led by Shoppers Drug Mart's current CEO, Domenic Pilla, and retain its name, associate‐owner structure, and its unique and compelling shopping experience."

Loblaw's information statement indicated that the company became interested in a potential combination with Shoppers Drug Mart more than two years ago.

According to Loblaw, in the spring and summer of 2010, Shoppers Drug Mart and its financial adviser RBC Capital Markets contacted a limited number of parties, including international pharmacy and retail companies and private equity firms, regarding the possibility of "undertaking a strategic transaction" with Shoppers Drug Mart. Loblaw said it was contacted in connection with this process but declined to participate. Then in early 2011, Loblaw senior management began to explore the possibility of a business combination with Shoppers Drug Mart, and on Feb. 22 John Lacey, a director of Loblaw and Weston Ltd., contacted David Williams, the previous chief executive officer of Shoppers Drug Mart, to express Loblaw's interest in a combination with the drug chain.