METRO-RICHELIEU TO BUY 41 LOEB SUPERMARKETS

BRIAN DUNN

MONTREAL (FNS) -- Metro-Richelieu Inc. here has agreed to buy 41 Loeb supermarkets in Ontario for about $85 million (Canadian $125 million) from Provigo Inc.

Provigo was recently acquired by Loblaw Cos. Ltd. of Toronto.

Frozen out of the grocery industry consolidation in Canada last fall, Metro-Richelieu had the right of first refusal to acquire all 92 Loeb stores, but passed on the other 51 outlets and settled on the best ones in the Ottawa area and northeastern Ontario close to its Quebec home base.

The move also represents its first foray into the lucrative Ontario market, home to about one-third of Canada's population. The deal includes two Loeb distribution centers in the Ottawa area.The purchase will add about $340 million in annual revenue to Metro-Richelieu which had sales of $2.5 billion last year. It will also put it neck-and-neck with Canada Safeway Ltd. of Calgary, Alberta, for third spot in Canada's estimated $27.2 billion grocery market, behind leader Loblaw and Empire Co. Ltd. of Stellaraton, Nova Scotia which acquired Toronto-based Oshawa group last fall.

Metro also acquires the Loeb banner for all of Ontario which means Loblaw will likely change the name of its remaining Loeb outlets. Despite the acquisition, Metro could still be a takeover target, according to analyst Dominik Dlouhy, president of Dlouhy Investments here, since Loblaw and Empire, the only other two publicly traded grocery chains in Canada, are family-controlled.

"I'm not saying they will be taken over, but if an American or European company decides to come to Canada, they're the only real game left in town."

The acquisition of the 41 Loeb stores gives Metro a 34% share of the Ottawa food market, just below Loblaw's 35%, according to Dlouhy.

Metro plans to spend $34 million over the next 2 to 3 years upgrading the Loeb outlets and plans to build Loeb into a strong company by expanding into other parts of Ontario. It will also open some of its Super C discount banners in the province.

Eric Lafleche, currently in charge of Super C in Quebec will move to Ottawa and head up the new Loeb division.

The Loeb acquisition will be financed with bank loans or by issuing new debentures, according to Metro.

A Loblaw spokesperson said the company will use the proceeds from the sale of the 41 Loeb stores to reduce the $545 in debt it incurred to complete its Provigo purchase.