Loblaw makes bid to buy B.C.-based QHR Corp.

Mike-CheckleyLoblaw Companies Ltd. is planning to expand its growing presence in the healthcare industry, proposing a $170 million, all-cash friendly bid to buy a B.C.-based EMR vendor. Canada’s largest food retailer offered $3.10 cash per share of Kelowna’s QHR Corp. – or 22 per cent over the stock’s price on the TSX Venture Exchange – saying it will be a “natural complement” to its Shoppers Drug Mart division.

Loblaw purchased Shoppers, Canada’s largest retail network of pharmacies, in 2014 for $12.4 billion.

A shareholder vote on the QHR deal will require two-thirds approval, and is expected to take place at a QHR special shareholder meeting in October. It already has the approval of QHR’s board of directors.

QHR CEO Mike Checkley (pictured) said exclusive negotiations began two weeks ago following an unsolicited offer from Loblaw. “We weren’t out to sell the company,” he said on an investors conference call. “What came across the table we felt was very fair and we feel this is absolutely the right arrangement for us and our customers.”

The deal does allow QHR to consider other offers, and comes with a $6 million break fee if one is accepted.

If approved, the acquisition would give Loblaw a foothold with the 7,700 healthcare providers QHR currently supports with its suite of electronic medical records technology – that business accounts for 20 per cent of the Canadian electronic health record market, which is worth approximately $350 million per year, according to Cantor Fitzgerald analyst Ralph Garcea.

“We recognize that the future of healthcare is digital and this strategic investment will make us a better health and wellness partner to patients and providers,” said Loblaw spokesperson Tammy Smitham. “QHR brings complementary talent and technology to our organization, providing opportunities to establish new business partnerships and drive improved care coordination for Canadians.”

Smitham said that Loblaw has no short term plans to change the way its pharmacy business operates – but that the company is hopeful the acquisition will in the long term make its patient care more efficient, and allow it to work with more healthcare providers beyond the pharmacy niche. In recent years, retailers including Shoppers have added medical services, notably dispensing flu shots and prescription renewal services, as governments have sought to regulate the professional allowances pharmacies receive from drugmakers.

RBC Dominion Securities analyst Irene Nattel said in a note that the QHR acquisition will have negligible impact on Loblaw’s results but should fit alongside the company’s existing pharmacy and healthcare operations.

QHR’s shares climbed 56 cents to reach $3.10 in mid-afternoon trading on the TSX Venture Exchange. Loblaw shares were up 67 cents to $71.77.

Loblaw has looked to its Shoppers division to deliver new avenues for earnings growth, as competition for sales volume in its grocery business has expanded beyond traditional competitors like Metro and Sobey’s to include big-box retailers Costco and Walmart.

The Shoppers acquisition in 2014 gave Loblaw access to smaller sized stores in high density urban neighbourhoods, where Walmart and Costco remain largely removed. Following the introduction of increased food and grocery offerings at its drugstores, revenue growth at Shoppers Drug Mart outpaced other parts of the company’s business in the second quarter.

In July, Loblaw reported its net profit fell almost 15 per cent in the quarter from 2015. Its net income was $158 million or 39 cents per share for the three months ending June 18. That was down from $185 million or 44 cents per share a year earlier.

However, the company’s overall revenue grew by $196 million or two per cent, putting it at $10.7 billion from $10.5 billion a year before.

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