Loblaw Companies Ltd. and George Weston Ltd. (GWL) Have announced a reorganization under which Loblaw will spin out its 61.6 per cent interest in Choice Properties REIT.
Under the spin-out, Loblaw common shareholders other than GWL will receive 0.135 of a GWL common share per Loblaw share, which is equivalent to the market value of their pro rata interest in Choice Properties, and GWL will receive Loblaw’s 61.6 per cent interest in Choice Properties.
After the spin-out, Loblaw will not retain any equity interest in Choice Properties and will be a pure-play Canadian food and drug retailer.
“The reorganization will result in a more efficient group structure, that strategically benefits both Loblaw and Choice Properties, which in turn strengthens GWL,” said Galen G. Weston, Chairman and CEO, Loblaw Companies Ltd. and George Weston Ltd.
“Loblaw, Choice Properties and GWL investors will all benefit from the strategic and investment clarity this transaction brings.”
“Over the past few years, the strategies of Loblaw and Choice Properties have diverged. Loblaw is focused on strengthening its core retail business and growing in areas such as digital, healthcare, payments and rewards, while Choice Properties is focused on mixed-use development and investments in diversified real estate asset classes,” said Sarah Davis, President of Loblaw Companies Ltd.
“Our retail store network continues to be a key competitive advantage for us, but we don’t see ownershipof real estate as core to our strategy going forward.”
Loblaw plans to maintain its current quarterly common share dividend after the spin-out. GWL plans to raise its quarterly common share dividend by 5 per cent to $0.515 per share (or $2.06 per share annualized), contingent on the closing of this transaction.
Therefore, aggregating dividends from the two companies, Loblaw shareholders who hold their distributed GWL common shares post-closing of the transaction will receive a 24 per cent increase in their current dividend as a result of the spin-out.
The transaction will have no impact on the important, ongoing operating relationship between Loblaw and Choice Properties and all current agreements and arrangements, including the Strategic Alliance Agreement and leases, will remain in place after the spin-out. In addition, Loblaw will continue to be Choice Properties’ largest tenant.
Loblaw and GWL do not expect any change to the credit ratings of Loblaw, Choice Properties or GWL by Standard and Poor’s or DBRS as a result of the spin-out.
The plan of arrangement will require the approval of at least two-thirds of the votes cast by all the common shareholders of Loblaw, as well as a majority of the votes cast by Loblaw Minority Shareholders. The vote will be conducted at a special meeting of Loblaw shareholders expected to take place in October 2018.
