Wal-Mart Deal Rumors Give Loblaw a Boost

Feb 18, 2002

Shares in Loblaw Cos. Ltd. have soared 10 per cent in the past three days on speculation that Wal-Mart Stores Inc. might choose it as a partner to enter the Canadian grocery business, reports Saturday’s Globe and Mail. Its stock closed Friday at $58.45 on the Toronto Stock Exchange, up $1.80 on four times the normal trading volume. Loblaw Merchandising analyst Perry Caicco at CIBC World Markets said Friday in a report: “Loblaw has risen over the past three days on rumors of Weston selling its stake.”

Wal-Mart has enjoyed enormous growth in its U.S. grocery business, but hasn’t made a serious foray into the food business in Canada. The theory is that buying Loblaw, a $16-billion company, would give the retailer dominant market share in Canada. One senior Bay Street banker who has worked in the grocery sector said: “Wal-Mart is definitely looking for a way into the food business in Canada, and they know they can’t do it themselves.” He added that Wal-Mart officials recently talked about a relationship with Sobeys Inc. grocery chain. He played down the possibility of a full-scale takeover of either grocery chain, suggesting that joint ventures were more likely. There were also rumors that Royal Ahold NV, Europe’s largest food distributor, was eyeing Loblaw.

Moderator Comment: What effect would a Wal-Mart/Loblaw’s
or a Wal-Mart/Sobey’s combination have on the Canadian retail market?

One of the more interesting aspects of a Wal-Mart and
Loblaw’s union would be how Bentonville built on the Canadian retailer’s private
label program. Loblaw’s reputation is that it is a store brand innovator. That
can not be good news for CPG brand marketers already nervous about Wal-Mart’s
private label intentions. [George
Anderson – Moderator

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