Competition regulators have approved the $12.4-billion takeover of Shoppers Drug Mart by Loblaw Cos. Ltd., removing the last obstacle in a deal that sees the largest grocery company in the country acquire Canada’s largest pharmacy chain.
In a statement, the federal Competition Bureau said it has reached a “remedy” to “competition concerns” related to the blockbuster deal, which was first announced by the two companies last summer.
Loblaw will sell 18 retail locations between the two merged chains, as well as sell a total of nine pharmacies within its grocery outlets to independent competitors, the bureau said.
The approval also comes with “behavioural restrictions” for the newly merged company, the bureau’s statement said.
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Brampton, Ont.-based Loblaw is the largest food retailer in Canada with more than 1,000 corporate and franchise supermarkets that operate under 22 different banners, including No Frills, Great Canadian Superstores and Fortinos.
Shoppers oversees a retail pharmacy chain of more than 1,200 locations across the country, making it the biggest pharmacy in the country.
|STORES ON THE BLOCK|
Shoppers Drug Marts that must be sold:
— Sechelt, B.C.
Other Loblaw-branded stores being sold:
— No Frills in the Ontario communities of Blenheim and Elmira, as well as Barrington Passage, N.S.
— Save-Easy in Dalhousie, N.B.
Loblaw pharmacies being sold to independent operators:
— Almonte, Ont.
The bureau said Friday the merged company would own a retail network of 2,738 stores and 1,824 pharmacies.
The decision will impose limits on Loblaw in how far it can go in forcing its suppliers to lift prices on Loblaw’s competition, and that such “behavioural restrictions” will be in place for the next half decade.
Without them, the market power of the new entity could lead to higher prices, the decision said.
“The bureau determined that without restrictions on certain Loblaw programs and agreements, the proposed transaction would likely lead to higher wholesale prices paid by other retailers to suppliers and, in some circumstances, higher retail prices for consumers,” the federal agency said.
On July 15, the pair announced a friendly takeover of Shoppers by Loblaw, a deal shareholders approved in September. Consent from competition regulators was the last remaining obstacle in the deal’s path to closing.
The merger follows the takeover of Safeway Canada by rival Sobeys for $5.8 billion last year, the country’s second-biggest grocer with a dominant chain in Western Canada.
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Experts say both deals were made by Canadian grocery operators to help fend off a deeper push among U.S. discount chains into the Canadian market, and supermarket sales in particular.
“This Agreement addresses the most significant negative competitive effects of the merger by ensuring that consumers continue to benefit from competitive prices in the retail sale of drugstore and pharmacy products in Canada,” John Pecman, commissioner of the Competition Bureau said.
“The Bureau will continue to investigate Loblaw’s programs related to its relationship with suppliers to ensure that Canadian consumers benefit from vigorous competition.”