The meeting that sealed the $12.4-billion deal between Loblaw Companies Ltd. and Shoppers Drug Mart Corp. took place between two people, meeting alone on a country road.

In a press conference on Monday to discuss details of the deal that will unite two of Canada’s biggest retailers, Galen G. Weston, executive chairman of Loblaw Companies Ltd., said he proposed the deal to Shoppers Drug Mart Corporation chair Holger Kluge early Thursday morning.

The two men met in a minivan on a country road northwest of Toronto and shook hands to seal the deal.

“We’ve been dating for some time,” joked Holger Kluge, chair, Shoppers Drug Mart.

Loblaw, the country’s largest supermarket company, will pay $61.54 a share for the leading Canadian drug store chain, the companies said in a statement released Monday. The price represents a 29.4 per cent premium to shareholders.

The deal comes at a critical time in grocery retail in Canada, with large U.S. discount retailers including Target and Wal-Mart making aggressive plays for market share. Both retailers sell groceries in large-format stores that also sell clothes and housewears, and that also include low-cost pharmacies.

The deal will take about six to seven months to close, according to Loblaw officials.

Weston said he is confident the deal will win the approval of Canada’s Competition Bureau, given the large number of competitors operating in the Canadian grocery market.

When asked if there will be job losses in the immediate or foreseeable future, Loblaw Companies Ltd. president Vicente Trius said, “When you look at the store front line, no changes whatsoever.”

“Shoppers already has food space,” said Trius. “We think we can considerably expand the productivity.”

Shoppers, in turn, can offer Loblaw a network of the “best urban small-format” stores, Trius said. “Just imagine being able to go to Loblaws and having the option to buy a wide variety of the products you’d see at Shoppers,” said Trius. “Or you could go to Shoppers and buy your favourite PC Blue menu items.”

Shoppers Drug Mart will keep its name and brand and operate as a separate division of Loblaw. Loblaw’s private label and convenience food will start appearing in the drug stores.

There are no planned changes to the popular Shoppers Optimum card loyalty program.

The deal follows on the heels of the $5.8 billion purchase of Canada Safeway by the Atlantic-based Empire Company Ltd. in June. Empire operates Sobeys Inc. as a wholly owned subsidiary and the Safeway-Sobey merger cemented the company’s position as Canada’s second largest grocery chain, behind Loblaw.

“Clearly this is a transformational deal for the Canadian retail landscape, and provides a strong return for Shoppers shareholders that were otherwise faced with a few more years of punitive drug price reform and limited earnings growth,” analyst Perry Caicco of CIBC World Markets wrote in a note to investors.

Caicco said it is not impossible that another bid could emerge, given the strategic locations of Shoppers Drug Marts in so many urban centres. He said Shoppers would be an attractive acquisition for Wal-Mart, or for CVS Caremark or Walgreen, two pharmacy retailers operating in the U.S.

The merger is a win for both Canadian firms, said George Minakakis, former general manager Canada and CEO, Greater China, for eyewear retailer Luxottica Group, and author of a book on retail leadership.

Loblaw will gain access to the convenience market through Shoppers Drug Mart store and Shoppers will have access to popular Loblaw products that will help draw more customers.

“In addition, to the loyal customer base that Shoppers has, this will further raise credibility to Loblaw pharmacy and make it more challenging for new entrants to acquire customers,” he said.

“When you consider all the other potential moves Shoppers or Loblaw could have made, this makes the most strategic sense.”

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“We’ve always been a diversified retail business.” said Weston at the press conference.

“We have a very significant discount business. We have a very significant full-service supermarket business. We have a bank. We have an apparel business. When you add a drug-store chain, you have complimentarity and independence and growth.”

A deal has been in the works for three and a half years, said Weston, calling it a new chapter in his vision for “health, wellness and nutrition.”

Loblaw has a 1 per cent share of the pharmacy business in Canada dominated by Shoppers, he said. Shoppers, meanwhile, sells $1 billion in food, compared with Loblaw’s $30 billion.

While Loblaw has been opening giant grocery stores in recent years, Shoppers has refurbished its pharmacies to include food.

Together, said Weston, Loblaw and Shoppers feature 65 million square feet of selling space. There are 1,400 Loblaw stores under different banners, and 1,200 Shoppers Drug Mart locations in Canada. The drug store chain does business in Quebec under the name Pharmaprix.

When the deal is done, Shoppers shareholders will own about 29 per cent of the combined company, Loblaw said in a statement. Weston’s voting ownership will be about 46 per cent of Loblaw’s common shares.

The merger will require a two-thirds approval by Shoppers’ shareholders at a meeting in September. Since Weston holds 63 per cent of Loblaw’s common shares, there’s no need for a Loblaw shareholder meeting.

The grocery giant is financing the deal through a $3.5 billion term loan and a $1.6 billion bridge loan plus “available cash resources,” the company’s statement said.

“The combined company’s significant cash flow will allow for rapid debt repayment,” the statement said.

Annual revenue of the combined company would have been more than $42 billion in 2012, according to the statement. Loblaw, based in Brampton, and Toronto-based Shoppers Drug Mart together made earnings before interest, taxes, depreciation and amortization of about $3 billion last year.

Loblaw is paying an equity value of 10.29 times earnings before interest, taxes, depreciation and amortization.

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