Toronto-based Leon’s Furniture Ltd is merging with the Brick Ltd. of Edmonton in friendly deal for about &700-million. This has been done in order to strengthen the merchants.
Within the weakening housing market and sluggish economy, these two big companies were facing many strains on the growth of sales and were looking ways for economic improvement. This announcement on Sunday has teamed up the two largest furniture retailers of the country.
After The Brick faced financial trouble for the last few years having repaid most of the owed $110 and the Leon’s losing ground due to discretionary purchases and debts, the planned takeover helped the two rivals pick up the momentum.
“It is worth watching these two Canadian retailers reaching such an agreement in these economic times when the multiple American corporations taking the country’s whole business,” said Leon’s CEO and would be CEO of the new company, Terrence Leon. ”This will put pressure on weaker opponents.”
Renovations of the strategies and making new allies are the new strategies of domestic retailers. $770-milion was spent by Canadian Tire Corp. Ltd last year for snapping up sporting goods.
“It’s like survival of the fittest of Darwin, where the competition is of no match and more is coming.” said Fairfield Commercial Real Estate Inc retail adviser broker Michael Kehoe.
With the closure of the deal, for $5.40 a share Leon’s will have the Brick. Vi Konkle, former executive of Mart Canada Corp. will remain head of the Brick with the two keeping the previous banner names.
“Leon’s would be more exposed to Western Canada, British Columbia in particular. The business models are not same, Leon owns most of the real estates while the Bricks having none and Leon’s stores tending to be bigger,” said BMO Nesbitt Burns analyst Stephen Macleod.
“While Leon’s have individual stores to run warehouses while the brick are running centralized distribution centers,” he said.
The various slogans of these two markets have been very popular in the households. Though specializing in furniture, they also take low-margin electronic appliances.
Consumer’s “show rooming” effect of going to the stores with bricks-and-mortar and choose the products but buying it from online shops has hurt electronics sales.
With recession and liquidity squeeze sinking the stock from $9 in 2008 to $1 in 2009, The Brick bounced back with present executive chairman Bill Gregson by better forecasting of product-demand, staffing levels and inventory stockings.
Total fund hold by the biggest bondholders being William Comrie and Fairfax Financial Holdings Ltd, along with an RRSP and Mr. Gregson is the Brick’s 66.6 per cent shares and warrants which made the deal most acceptable.
With a rise of 13 per cent the Brick’s stock closed at $3.50 and with a drop of 7 per cent Leon’s shares finished at $11.57.
Leon’s desires to pay the cash portion from the remaining cash resources together with $500-million in committed bank facilities that are fully-underwritten by Desjardins Capital Markets and CIBC. These bank facilities have been compromised of a new $100-million and previous $400-million, which would be used for financing of the transaction if required.
