Metro Deal Sparks Speculation

Metro Deal Sparks Speculation

MONTREAL — Officials of Metro Inc. [4] here have yet to reveal their plans for the nearly $500 million the company is receiving as a result of selling half its stake in the convenience store operator Alimentation Couche-Tard, but speculation that the retailer would use it to fund an acquisition continued last week.

“We’re now carefully evaluating different opportunities for these proceeds including investments for growth and returns to shareholders,” Francios Thibault, chief financial officer of Metro, said in a conference call discussing the retailer’s first-quarter earnings last week.

“We’re looking at alternatives for growth, either through acquisitions, if they present themselves, [or] productivity improvements through investment,” added Eric LaFleche, Metro’s chief executive officer.

Read more: Metro to Raise $482M in Couche-Tard Sale [5]

The company said late last month it agreed to transfer 10 million of its shares in Couche-Tard, operator of the Circle K convention chain, to a consortium of banks led by BMO Nesbitt Burns for around $482 million (U.S.). Metro said it would retain a 5.7% ownership stake and a 17% voting stake in Couche-Tard.

Some analysts concluded the move would help raise funds for a potential bid for Safeway Canada [6], should the Pleasanton, Calif., retailer decide to sell its holdings in Canada. Similar speculation followed Loblaw [7]’s announcement that it would seek to raise funds by spinning off its real estate holdings into a publicly traded real estate investment trust.

Read more: Loblaw REIT Spurs Debate on Safeway Canada [8]

While Safeway has not commented on whether it would consider selling its Canadian stores, Karen Short, an analyst following Safeway for BMO Capital Markets in New York, argued for a sale in a research note last week. According to Short, Safeway Canada’s 222 stores generate $6.7 billion in annual sales and could command a price of around $4.3 billion. Those proceeds could be used by Safeway to pay down debt.

Metro said it decided to sell its holdings in Couche-Tard because of its market value relative to Metro’s own value. Metro has owned a stake in Couche-Tard for more than 25 years.

In the fiscal first quarter that ended Dec. 22, Metro said net earnings climbed 17% to $121.4 million on sales of $2.7 billion (U.S. figures). Sales climbed 2.7% while same-store sales improved by 1.5%. LaFleche said the results were achieved in a highly promotional market — particularly in Ontario — with virtually no inflation.

LeFleche told analysts that Metro is focused on efforts to improve basket sizes through an emphasis on improving its fresh offerings. He said the company would look to replicate the strides it made in produce to other categories including meat, bakery and prepared foods.

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