Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Hammerer » 11 Apr 2013 19:28

Quebec wrote:
Pharmacy is a tough business these days it seems...

Still holding...
SDM may still benefit from consolidation of the industry. At least they're getting 1/2 of their business from non-dispensing operations. SDM should have the capital available to acquire smaller pharmacies that may not weather declining reimbursement as well. Maybe that's why they're doing share buybacks instead of dividend payments: Increasing your float is a lot more palatable when you've been decreasing it for a while.

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Peculiar_Investor » 15 Jul 2013 06:52

Guess Shoppers won't be so beaten down this morning, a friendly take-over has been announced, see Loblaw to buy Shoppers Drug Mart for $12.4-billion - The Globe and Mail.
Under terms of the deal, Toronto-based grocery giant Loblaw is to buy Brampton, Ont.-based Shoppers’ outstanding common shares for $33.18 in cash, plus 0.5965 Loblaw common shares per each Shoppers Drug Mart common share.

Based on the closing share price for Loblaw shares on July 12, the total value is $61.54 per Shoppers Drug Mart share, representing a 29.4 per cent premium to the 20-day volume-weighted average price of Shoppers Drug Mart stock as of July 12, the two companies said.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Quebec » 15 Jul 2013 07:39

Oh yeah...

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Taggart » 15 Jul 2013 09:49

I own shares in Shoppers Drug Mart but I'm not happy that this company is being taken over. Before there was a choice of seven Canadian companies with dividend growth to choose from. If this deal is finalized, the count will be down to six on my watch list. Aside from Loblaws giving their shareholders small dividend increases this year and the previous one, the last increase from them was way back in 2005. Not impressed at all.

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by tidal » 15 Jul 2013 09:54

Taggart wrote:I own shares in Shoppers Drug Mart but I'm not happy that this company is being taken over. Before there was a choice of seven Canadian companies with dividend growth to choose from. If this deal is finalized, the count will be down to six on my watch list. Aside from Loblaws giving their shareholders small dividend increases this year and the previous one, the last increase from them was way back in 2005. Not impressed at all.
Well, Loblaws just advanced you about 11 years of SC dividends today, so that may help to get you through it?
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by scomac » 15 Jul 2013 09:58

I would take the money and run whether I owned Shoppers or Loblaws! I can see a boat load of growing pains with this deal.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Stan » 15 Jul 2013 10:00

Sold my shares this am. Handsome profit :D

Stan

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Jo Anne » 15 Jul 2013 10:01

I just sold all of my Loblaws for $51.365/share.

I paid $41.59 for it on April 13, so that's a nice little profit.

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Pickles » 15 Jul 2013 10:10

Jo Anne wrote:I just sold all of my Loblaws for $51.365/share.

I paid $41.59 for it on April 13, so that's a nice little profit.
Well done, you little come-by-lately market timer, you!! :lol:
Regards,
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Springbok » 15 Jul 2013 10:32

Jo Anne wrote:I just sold all of my Loblaws for $51.365/share.

I paid $41.59 for it on April 13, so that's a nice little profit.
We are still waiting for it to get back to what we paid in 2003 :(

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Taggart » 15 Jul 2013 10:43

scomac wrote:I would take the money and run whether I owned Shoppers or Loblaws! I can see a boat load of growing pains with this deal.
Same here Scomac. I think Peter Lynch once called it diworsification. I say this knowing that Loblaws has small scale pharmacies within some of their own stores.

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Jo Anne » 15 Jul 2013 11:03

scomac wrote:I would take the money and run.
I see if I'd waited a bit I would have gotten an extra bit of money, but when a stock starts out the morning on a tear like Loblaws (and Shoppers) did this morning, you never know where the hell it's going to end up by the end of the day. I believe in the "bird in the hand" approach.

The capital gain on Loblaws plus my Molson flip last week is enough to pay for our road trip to Edmonton next month.

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by adrian2 » 15 Jul 2013 11:51

Taggart wrote:I say this knowing that Loblaws has small scale pharmacies within some of their own stores.
I'd venture to guess Loblaws has pharmacies within most of their stores.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by westcoastfella » 15 Jul 2013 12:17

Taggart wrote:I own shares in Shoppers Drug Mart but I'm not happy that this company is being taken over. Before there was a choice of seven Canadian companies with dividend growth to choose from. If this deal is finalized, the count will be down to six on my watch list. Aside from Loblaws giving their shareholders small dividend increases this year and the previous one, the last increase from them was way back in 2005. Not impressed at all.
I agree - there are not many large consumer staples in the list of companies that I track in this space, and SC was a good one. Finding a suitable replacement might be difficult.

That being said - SC was one of my larger holdings, and with an ACB of $41 I am happy with the return. I will sell today.

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Hammerer » 15 Jul 2013 12:51

Wow.

I expected consolidation in the industry, but not in this direction!

On the plus side for SC, w.r.t. food and related products, they should get better pricing (for them) and better selections in their stores.

"Shoppers shareholders can choose whether to get $61.54 in cash or 1.29417 Loblaw common shares plus $0.01 cash for each Shoppers Drug Mart share held... The amount of cash to be paid by Loblaw will be capped at $6.7 billion and the maximum number of Loblaw common shares to be issued will be about 119.9 million, the release said."

With L @ $51.45 right now, that's $66.61 worth of L shares for each SC share, plus another penny for your time. I take it L shares would get oversubscribed and you'll get some weighting of each, but there could be a few more dollars for the SC holders if they hold on and everything goes (at least) as planned.

Will/could anyone else come out of the woodwork for a bid on SC?

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Taggart » 15 Jul 2013 15:36

Hammerer wrote:

Will/could anyone else come out of the woodwork for a bid on SC?
When I first heard the announcement on the radio, I only heard the tail end of it, and thought at the time it might be Walgreens up from the U.S. making the bid. I got that one wrong.

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Quebec » 15 Jul 2013 19:28

By random chance, I transfered my SC shares in my TFSA near their ACB in May this year, at around $46, with little income tax to pay as a result. Now I've just placed a (sell) limit order for SC in the TFSA at $60, which I trust will be executed tomorrow morning. There will be no tax to pay on the near 30% gain since May. I'm a happy camper tonight. I freely admit this is all luck.

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by nutN2Lewz » 16 Jul 2013 16:35

I have a small stake in Shoppers and I'm trying to decide whether to hold or sell. I am leaning towards selling.

Sell ...
Don't have a lot of confidence in the very competitive grocery/pharmacy sector.
Don't see a competing bid for Shoppers from (Walmart, Target, Walgreens).
Lock in a healthy profit.

Hold ...
Stock price might increase due to a competing offer

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Quebec » 16 Jul 2013 17:13

Your list of reasons to sell is longer than your list of reasons to hold...

My shares were sold this morning, and the proceeds reinvested (VSB)

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Taggart » 17 Jul 2013 13:32

Stan wrote:Sold my shares this am. Handsome profit :D

Stan
Perhaps Stan did the right thing two days ago. Yesterday, all SC did was go slowly down and down. Today, so far, it's been up and down like a yo-yo. I'm getting dizzy. :mrgreen:

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by qasimodo » 17 Jul 2013 14:10

Loblaws has a dismal (and bottom-line-killing) history with IT implementation.
Even if this makes sense from a "strategic" perspective, it will doubtless flounder on integration issues
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Pickles » 17 Jul 2013 17:28

I can see the "synergies" now:

Loblaws repackages blueberries as "anti-oxidant pills" and slaps on a prescription fee for each purchase.

Shoppers at SDM start to complain about inventory problems: in the height of flu season, SDM has no cough syrup or antihistamines.

Loblaws increases prices by 20% and offers a 10% discount to seniors and affinity card holders.

SDM starts its own line of clothing called "Pharma Fresh", targeted at seniors seeking orthopedic shoes "with an attitude" and comfortable pull on pants.

(disclosure: I used to hold shares in both companies)
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Hammerer » 18 Jul 2013 00:08

Pickles wrote: SDM starts its own line of clothing called "Pharma Fresh", targeted at seniors seeking orthopedic shoes "with an attitude" and comfortable pull on pants.
I wouldn't underestimate the size of this market...

I do foresee a nice synergy of Loblaws rebranding its "Drugstore Pharmacy" (what a horrendous name) as mini-SDMs in its grocery stores. SDM is just a far better brand. "Shoppers Xpress" sounds just right. SDM's computer system is better, they have their own distribution centres, and they're doing an okay job with their Sanis generic. L can probably better utilize Sanis these days better than SDM can. It makes the Sanis court appeal for Ontario that much more lucrative, expect a lot of happy lawyers, a case this big can unite all Seven Sisters [edit: This case might be wrapping up]. SDM can help out L's pharmacy A LOT. And pricing between SDM and L have largely harmonized in Ontario, so there's less of an issue with rebranding (SDM has increasingly welcomed a more down-market clientele that L always welcomed with open arms).

It's hard to say where SDM will benefit. Ok, they'll have a/another generic food line to carry, but what space will they be able to give up? I'm sure SDM runs the numbers to only carry products that are sufficiently profitable. I suppose L can add SDM to its planogram sales force or as a premium listing fee. The continued amazon.com'ization of retail shelf space. Every linear inch of a shelf's space is decided by auction with the highest bidder taking it all, with a per item charge for stocking, returning, holding, managing, etc.

Hard to say if this deal will give Loblaws access to cosmetics, I suspect the manufacturers don't allow their products to be sold in grocery stores or discounters.

I doubt there's no interest in combining their operations, there's too much to be gained with even a limited integration. I do believe it when they say they have no plans on shutting down any stores, there's nothing to be gained unless the SDM was already struggling, now they'll have another valid path for the RX files upon closing.

Rexall has sold off its banner division and a chunk of its computer system to McKesson. What may they be preparing for?
Last edited by Hammerer on 18 Jul 2013 01:15, edited 1 time in total.

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Peculiar_Investor » 18 Jul 2013 08:41

If I were a Loblaw or Shoppers shareholder I'd hope that they could replicate the successes that Canadian Tire has had with their purchases of Mark's Work Warehouse and then the Forzani Group (Sports Chek, Atmosphere, ...). For CTC shareholders (including this one), the integration and synergies seems to have happened without major issue, and actually seems to have benefited shareholders.

Clearly there are opportunities for Loblaw/Shoppers and clearly the challenge is achieving the synergies that are expected out of the deal. Unfortunately Canadian M&A history is full of many failed attempts at empire building that haven't achieved the goals articulated in the press release that accompanied the merger or acquisition, (e.g. here's looking at you Jean Monty and BCE.). As Pickles points out, Loblaw doesn't necessarily have a good track record on solving their own operational issues, now comes a much bigger challenge of integrating a major acquisition. Time will tell if they are successful.

Given the nature of the deal and the lack of "shop around" clause for Shoppers, if I were a Shoppers shareholder I'd probably take the money now rather than wait, particularly since the deal involves Loblaw shares which received a nice bump with their REIT spin-off.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by AltaRed » 18 Jul 2013 12:13

Peculiar_Investor wrote:Given the nature of the deal and the lack of "shop around" clause for Shoppers, if I were a Shoppers shareholder I'd probably take the money now rather than wait, particularly since the deal involves Loblaw shares which received a nice bump with their REIT spin-off.
Given Loblaws' track record, I'd say there is enough risk that Loblaws would botch it.... to sell SDM shares now, and take a 'wait and see' attitude for some period of time. I have never owned SDM or Loblaws shares but WAS contemplating the purchase of SDM shares as recently as a few weeks ago. I missed that boat.
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