MONTREAL — The cost of buying the Jean Coutu Group was high but the pill wasn’t too difficult to swallow because it will generate a good return on the investment, Metro Inc. chief executive Eric La Fleche said Monday.<\/p>\n
“Yes, the price was not ‘cheap,’ but it was justified and the potential is there,” he said after speaking to the Canadian Club of Montreal.<\/p>\n
The Quebec-based grocer officially purchased the chain of pharmacies Friday with the closing of the $4.5-billion transaction announced last October.<\/p>\n
This marriage between two Quebec retail jewels is expected to generate annual sales of about $16 billion from the operation of more than 1,300 supermarkets and pharmacies in Quebec, Ontario and New Brunswick.<\/p>\n
Cost savings from the deal are estimated at $75 million over the next three years.<\/p>\n
La Fleche told reporters that not only was Jean Coutu one of the last assets available, it was the best.<\/p>\n
“It’s a unique brand and a unique network in Quebec. By combining our brands, we will save money.”<\/p>\n
Consolidation has accelerated in the Canadian pharmacy sector since 2013 when Loblaw Companies announced an agreement to acquire Shoppers Drug Mart (Pharmaprix in Quebec) for $12.4 billion. Last April, it was McKesson Canada’s turn to swallow the Uniprix Group and its 330 pharmacies.<\/p>\n
Even if Metro was able to participate in the industry’s consolidation, the grocer was forced to loosen the purse strings a little too much for some analysts.<\/p>\n
Peter Sklar of BMO Capital Markets estimated that Metro paid 14 times Jean Coutu’s adjusted operating income, compared to just 11 times the profit Loblaw paid for Shoppers.<\/p>\n
The analyst wrote in a recent report that the Quebec grocer becomes particularly exposed to the risks of the pharmacy sector, citing the possibility of a federal intervention to reduce the price of generic drugs.<\/p>\n
“Despite the risks, we remain optimistic about Metro’s prospects,” he wrote. “The short-term potential for pharmacies to distribute medical cannabis could be a growth vector.”<\/p>\n
Although La Fleche says the merger of Metro and Jean Coutu will result in growth, he wouldn’t say if it will lead to a rapid expansion of Jean Coutu pharmacies in Ontario.<\/p>\n
“We think there will be opportunities for us,” he said. “In what form, it remains to be seen. We are not at this stage yet.”<\/p>\n
The two distribution centres operated by McMahon in Montreal and Quebec City to fill Metro’s Brunet pharmacies will close, resulting in the loss of a few hundred jobs.<\/p>\n
Companies in this story: (TSX:MRU, TSX:L)<\/p>\n","protected":false},"excerpt":{"rendered":"
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