In a move that was expected, and some say welcomed, Metro, the Quebec-based grocery chain and Jean Coutu, Quebec’s largest pharmacy retailer announced their merger. It was expected because of increased competition in Canadian grocery and pharmacy retail markets by chains like Walmart and Costco. While the takeover by Loblaw Companies Ltd. of Shoppers Drug Mart in 2014, which operates as Pharmaprix in Quebec may have strengthened Metro’s resolve to respond to competition through corporate growth.
Some say the deal will be welcomed by Quebecer’s who will be happy the merger is within the province, unlike what happened to Rona, purchased by American-owned Lowes, or St. Hubert’s Chicken bought by Ontario-based Cara, owners of long-time rival Swiss Chalet and several other restaurant chains.
The pharmacy chain will operate as a separate division of Metro and is expected to be headed by its current CEO Francois Coutu who, along with his father and founder Jean Coutu, have both repeatedly rebuffed suggestions that the family-owned company was for sale in the past. But at the recent news conference announcing the merger, Jean Coutu said, “Sometimes you have to forget your ego and try to combine with a real friend.”
Metro CEO Eric La Fleche said, “We need this size to have economies of scale and efficiency to fight with the large players that we currently face,” likely referring to their major competitors and Amazon’s recent entry into the grocery retail business with its takeover of Whole Foods Market.
The $4.5-billion merger of Metro’s grocery stores in Ontario and Quebec, and Jean Coutu’s pharmacies mostly in Quebec, with a few stores in Ontario and New Brunswick, will certainly strengthen their collective footprint in the province’s grocery and pharmacy markets. The total number of stores will rise to 1300+, and employ nearly 90,000 workers with annual earnings expected to be about $16-billion.
The merger will still require regulatory approval and assent from at least two-thirds of the shareholders of Jean Coutu Group. A special meeting will be held in November to vote on the deal, but the Coutu family and senior directors collectively hold about 93% of the vote and have all stated they will support the sale to Metro.
According to the Financial Post, after the merger announcement “Jean Coutu’s shares ended the day 6.3 per cent higher and Metro’s spiked close to 8.8 per cent.” The merger will likely conclude in early 2018.
