LOBLAW COS. IN BID TO ACQUIRE PROVIGO

BRIAN DUNN

TORONTO (FNS) -- Loblaw Cos. here, Canada's largest grocer, said last week it plans to strengthen its position with the proposed purchase of Provigo, based in Montreal, for $1.05 billion ($1.62 billion Canadian).

The acquisition would give Loblaw a 32% share of the Canadian market, with annual sales of just over $11 billion -- adding $3.9 billion to Loblaw's total of $7.15 billion.

According to Pierre Michaud, Provigo's chairman, "Quebec's food distribution industry is becoming increasingly crowded, [and] a merging of forces is inevitable.

"Joining Loblaw while maintaining Provigo's culture and benefiting from Loblaw's commitments present attractive possibilities for the future of the Provigo team and its suppliers and customers."

In its proposed, offer Loblaw said it would maintain Provigo as a separate entity in Quebec, with its own board of directors and management team; maintain and expand Provigo's current employment levels, and continue Provigo's support of the Quebec farming community and small businesses through its produce, dairy and controlled label programs, while increasing support where possible through combination with Loblaw programs.

"This transaction will give our employees broader career opportunities in an even larger group and will offer Quebec suppliers a larger market," Pierre L. Mignault, Provigo's president and chief executive officer, said.

Loblaw's unsolicited offer to acquire Provigo came just a few days after Sobeys, Stellarton, Nova Scotia, disclosed plans to acquire Oshawa Group here for $975 million. That transaction includes wholesale operations and retail stores in Ontario and Quebec, where Sobeys has not previously operated.

The deal will give Sobeys sales of $6.5 billion and a 17% market share in Canada.

According to one observer, "The bid by Loblaw for Provigo is not surprising, in the light of the sustained interest Loblaw has shown for expansion into Quebec and the considerable costs this would entail without the acquisition of Provigo.

"The takeover bid for Oshawa has forced all players to position themselves rapidly."

Provigo's board of directors said it has agreed to support Loblaw's offer "on the condition the board receives a favorable fairness opinion from an independent financial adviser, who will be retained to work with an independent committee of the board."

Loblaw also added holdings in Atlantic Canada last week with the announcement that Oshawa would divest itself of Agora Food Merchants -- consisting of 58 owned and franchised IGA stores and 140 franchised stores that operate under other banners -- along with two wholesale operations in Atlantic Canada, to Loblaw to avoid a possible challenge from Canada's Competition Bureau.

If the stores had remained part of the Sobeys-Oshawa deal, Sobeys would have controlled more than 50% of the grocery market in Atlantic Canada.

Although neither Loblaw nor Oshawa disclosed the price of that transaction, an Oshawa executive told SN the price was less than $65 million for the 198 stores.

Observers said the biggest obstacle to Loblaw's completing the purchase of Provigo may be the Caisse de Depot, Quebec's powerful pension fund manager, which owns 30% of Provigo.

A spokesperson for the Caisse said last week it does not consider Loblaw's bid for Provigo a hostile offer. "[But] there are other options which could be advantageous and which would be in the interest of shareholders of the company and of the whole industry.

"As a large shareholder in Provigo, the Caisse is analyzing various options."

Peter Norris, a securities analyst with Dlouhy Investments, Montreal, said he expects the Loblaw-Provigo transaction to move forward. "It's a done deal," he told SN last week. "The only thing the Caisse might hold out for is a higher price."

If the Loblaw-Oshawa deal is completed as currently proposed, the Caisse's one-third of Provigo -- for which it paid $111 million in 1993 -- would be worth $325 million in cash and Loblaw stock.

Another possible obstacle to the merger, observers said, may be Metro-Richelieu, Montreal, Provigo's main distribution rival in Quebec, which reportedly was caught off-guard by the Loblaw-Provigo announcement. Metro Richelieu could not be reached for comment last week.

However, sources pointed out that Metro, which controls 7% of the Canadian market, now finds itself isolated and relatively smaller in the wake of recent mergers. As a result, they said, Metro may be trying to broker a deal between itself and Provigo through the Caisse.

According to Norris, "All that's left for Metro is to try and work out a deal with Loeb" -- a Provigo division that Loblaw may have to divest to satisfy the Competition Bureau.

Loeb operates 106 stores -- 94 stores in Ontario and 12 in Quebec -- with annual sales of about $650 million.