SOBEYS-PROVIGO BATTLE HEATS UP

STELLARTON, Nova Scotia -- The competitive battle between Sobeys here and Montreal-based Provigo is intensifying, and reverberations are being felt in the Provigo boardroom.

sidering resigning from the board of directors of Provigo because of apparent conflicts of interest. The Sobeys own 24% of Provigo stock and are the distributor's second-largest shareholder, with holdings valued at about $121 million Canadian ($89 million U.S.). But Sobeys will increasingly run into Provigo's territories as it carries forward its current expansion plan. It wasn't clear whether the Sobeys executives are being pushed off the Provigo board. The Sobeys declined comment on their plans when contacted by SN. Provigo executives could not be reached for comment. Canadian observers said they expect the Sobeys to resign once they determine how to dispose of their Provigo stock at the best possible profit. Observers said a conflict of interest with Provigo exists in eastern Quebec, where Sobeys operates 10 stores that compete directly with Provigo stores. In the past, the Sobeys have been asked to leave board meetings whenever Provigo directors discussed strategic planning for the stores, observers said.

Now Sobeys plans to expand more aggressively in Quebec, particularly in the west, opening one to three additional stores in the province each year, said Doug Stewart, president and chief operating officer of Sobeys, which has 120 units. Provigo has a big presence in western Quebec. Local observers said they believe the Sobeys' move off Provigo's board is inevitable because the heated competition will overshadow any cooperative relationship. "Sobeys is the biggest supermarket distributor in the Maritimes and eastern Canada, and it's been encroaching on Quebec territory for several years. Sobeys has historically been confined to one part of Canada, and Provigo doesn't like the idea that it's now become a competitor in other parts of the country because it creates a direct conflict of interest," said an observer. The Caisse de Depot, Quebec's pension fund manager, is Provigo's largest shareholder, with close to 40% of the equity.