SOBEYS OFFERS TO ACQUIRE OSHAWA GROUP

BRIAN DUNN

MONTREAL (FNS) -- Canadian retail consolidation would be heating up if a move last week by Sobeys, Stellarton, Nova Scotia, bears fruit.

The supermarket chain wants to acquire Toronto-based Oshawa Group Ltd. Combined sales would rival those of Loblaw Cos. Ltd., also in Toronto, Canada's largest supermarket operator.

Empire Co., which operates Sobeys, made an unsolicited offer last week worth about $910 million (Canadian $1.4 billion) for all of Oshawa's voting shares owned by the Wolfe family.

Most of the non-voting shares are held by the public. Empire has offered $45.50 for each of the 685,504 common -- or voting -- shares. If the Wolfe family agrees to sell, Empire would also offer $22.75 for each Class A non-voting share in cash and equity in a new public company that would combine Oshawa's IGA and Price Chopper banners and Empire's Sobeys stores. Their combined sales of about $6.5 billion would be second to Loblaw's $7.15 billion.

The Wolfe family has hired financial advisers J.I. Harris & Associates of Palm Beach, Fla., to advise it on the offer, which was set to expire Oct. 31. However, industry watchers predict the Empire offer will prompt other bidders to come forward and up the ante.

"Now that Oshawa is in play, there will be others that step up to the plate," said Warren Fenton, analyst at Dundee Securities Corp., Toronto.

Another analyst, Marilyn Brophy of TD Securities, Toronto, suggested the Wolfe family leaked the offer to the media because it feels Oshawa is worth more than $1.4 billion. Other analysts agree, saying a potential buyer would have to offer between $40 and $45 for each of the non-voting shares.

Brophy said in a recent report that Provigo and Metro-Richeliu are also takeover targets.

Empire has more than 120 supermarkets, including 78 Sobeys and 11 other stores in Atlantic Canada, 19 Sobeys in Quebec and 14 in Ontario, with another five store openings scheduled for Quebec and Ontario later this year. It has an estimated 45% of the food market in Atlantic Canada, 5% in Quebec and 3% in Ontario.

It also operates movie theatres, bottles soft drinks and owns food wholesalers in Atlantic Canada and Ontario. Its real-estate division leases more than 11 million square feet in retail and office space. In addition, Empire owns 25% of Hannaford Bros., Scarborough, Maine, a Northeastern U.S. supermarket chain.

In the year ended April 30, Empire's profit before special items was $44.5 million (Canadian $68.5 million) on sales of $2.1 billion.

Oshawa has stores across Canada and earned $35 million on revenues of $4.4 billion for the year ended Jan. 24.