The fifth business

The $12-billion takeover of Shoppers Drug Mart by Loblaws has much to recommend it. First, shareholders are happy, particularly Shoppers shareholders who are up more than 20 per cent. Loblaws and George Weston (I hold the latter) have risen less than 4 per cent on the news, but still, every bit helps. Second, according to the information released at the time of the announcement, there will be $300 million in cost savings by the third year of the merged entity. Third, it’s an all-Canadian deal, and I’m always in favour of home-grown.

On the downside, another publicly owned Canadian firm is gone, further reducing the number of investment-grade companies. The combo will have one-third of all grocery sales and one-third of all pharmacy sales in Canada. The Competition Bureau better take a close look because where does all this leave the consumer? In the future, how likely is it that Cheerios, or Canada Dry, or NeilMed sinus rinse, or Mr. Clean will be at different prices in Loblaws or Shoppers? I shop at both chains and often play one off against the other to save $1 here or $2 there. That differential ends in the new regime.

Moreover, I’m dubious about the boasted savings. Every merger makes similar claims but most times it’s illusory. Not to mention that Loblaws has had enough supply chain problems without running another company’s business and brands.

I generally like what Galen G. Weston is doing at Loblaws. As the fourth-generation boss he’s proving that family-run businesses and fortunes can prosper over the long haul. But I’m dinged if I can see how this merger does anything for the greater good. Seems just like a lot of chest-thumping in the face of U.S. competitors although Walmart is unlikely to be aquiver about a $42-billion revenue Loblaws-Shoppers when the U.S. giant is more than ten times bigger.

Of more interest to me than the actual deal was the fact that Galen G. brought along his four-year-old son, Graydon, for the announcement and photo opportunity. After a 1983 kidnapping scare at the family estate in Ireland, Roundwood Park, the Westons were wary about the family profile. Those fears now seem to have flown as the current generation shows the next generation how a business is run these days – right out in the open.