Canadian Tire Corporation (CTC), a diversified retail group that operates 487 sporting goods stores in Canada, has announced a friendly takeover offer for Forzani Group, the Canadian licensee of Intersport International Corporation (IIC), forming a larger group with more than 1,000 sporting goods stores in the country. The transaction is conditional on regulatory approval and 66.6 percent of the shares being tendered.
Two weeks before the announcement, IIC's board of directors unanimously approved Forzani's request to retain the Intersport license for Canada. While Forzani's 534 stores trade under many different banners, some of which may be eliminated in the future, CTC has committed itself to investing more in its Intersport banner, which it runs on a franchising basis at 65 locations. Furthermore, CTC will draw on IIC's big sourcing capabilities for its own private-label products instead of going through sourcing agents as before. Forzani will continue to sell Intersport's private-label products to retailers in the U.S. on a wholesale basis.
This and other synergies, including the increased leverage that the new entity will have in purchasing products from vendors, explain in part the price of 26.50 Canadian dollars per share being offered for Forzani, which represents a premium of 45 percent over its closing price on the stock exchange. Other reasons are probably Forzani's strong presence in Canadian shopping malls and the fact that Forzani is one of the 13 equal shareholders in IIC, a formidable powerhouse whose profits are a closely guarded secret.
Besides, there is strong speculation that CTC's acquisition may be a defensive move against a possible bid for Forzani by one of the major sporting goods retailers in the U.S. CTC says the deal will be accretive to its profits from the first year. Annual cost savings of C$25 million (€18.1m-$25.8m) are envisaged as of 2012, growing to C$35 million (€25.4m-$36.1m) by 2014, partly through back-office synergies, including better shipping and distribution.
CTC and Forzani are rather complementary in terms of the product ranges they sell, with CTC being strongest in ice hockey, camping, hunting and other sports equipment, and Forzani being a leader in sports apparel and footwear. Together their sporting goods stores will represent more than 28 percent of the Canadian market, estimated at C$7.7 billion (€5,580m-$7,944m) a year.
Bob Sartor is expected to quit as chief executive of Forzani, which will be run as an independent unit within CTC like Mark's Work Warehouse, which sells work clothing and footwear, and other operations. CTC also has gasoline stations and supplies financial services. Forzani will represent 14 percent of CTC's total pro forma revenues of C$10.4 million (€7.5m-$10.7 m) and 10 percent of its Ebitda of C$110 million (€79.7m-$113.5m). The stock price of CTC rose by 2.6 percent after the announcement.
Today's Forzani Group was founded by John Forzani, who acted as president of IIC until he turned 62 years old in 2009, and his brothers in 1974. The directly operated banners within the group are Sport Chek, Sport-Mart, Athletes World, Atmosphere, National Sports and Hockey Experts. Besides Intersport, other franchised banners are Nevada Bob's, Fitness Experts and Sports Experts.
