Forzani Group to Be Acquired by Canadian Tire

A Canadian Tire presentation can be found at: http://tinyurl.com/4xdlgd3

Forzani Group, in its last fiscal year, had total revenues of more than $1.4 billion from 500-plus stores. Its corporate banners include Sport Chek, SportMart, Atmosphere, National Sports, Athletes World and Hockey Experts. Its franchises include Sports Experts, Intersport, Nevada Bob’s Golf and Fitness Source.
Canadian Tire’s sales in 2010 were about $10.3 billion at more than 1,200 stores. With the addition of Forzani, the company will have more than 1,000 outlets carrying sporting goods.

On a conference call with analysts, Stephen Wetmore, Canadian Tire’s president and CEO, said his company is already the “ultimate authority” in automotive, hardware, outdoor tools and camping, among other categories. Canadian Tire is also the official sponsor of the NHL, has deep roots with the Olympics in Canada, and has helped over 300,000 children play organized sports in Canada through its Jumpstart charity.

But Forzani particularly provides Canadian Tire with access to athletic footwear and performance athletic apparel. More than 70 percent of Forzani’s sales are in athletic apparel and footwear, with the balance of sales in sporting hard goods that complement Canadian Tire’s assortment with very little overlap. The sales impact on Canadian Tire stores when a Forzani banner moves into the area, is less than 1 percent, he said.

Wetmore particularly emphasized how Forzani provides Canadian Tire with a presence in malls and access to a younger, 18- to 35-year-old consumer segment.

 “Canadian Tire has always been strong in youth and adult segments but a customer that eludes us is the younger demographic that shops the country’s malls and urban centers,” said Wetmore. “We know most parents buy kids their first bike at Canadian Tire, perhaps the second and maybe the third. But as kids get older their tastes change. Not only do they want more expensive bikes, they want all the apparel and gear that goes along with their cycling activities and that’s where Forzani comes into play. By acquiring Forzani, we gain access to a new set of customers. People at a point in their lives that typically dont shop our stores extensively today for sporting-goods.”

“This transaction provides exceptional value for our shareholders and customers and positions the Forzani brands and banners for accelerated growth as part of a leading Canadian retailer,” said Bob Sartor, CEO, Forzani Group Ltd, who is expected to step down after the transition. “Our employees are some of the most knowledgeable and passionate in the Canadian sporting goods space. This transaction will enable us to move forward and provide our people with exciting new growth opportunities as part of a larger, more diverse organization.”

The transaction is valued at CN$26.50 per share, a 50 percent premium on the closing price of Forzani’s stock on Friday.
Canadian Tire said the purchase will be completed using $500 million in cash and short-term financing, and has been unanimously approved by Forzani’s board. The company expects the transaction to close in the third quarter. Besides shareholder approvals, the transaction is also subject to regulatory approval.
Canadian Tire intends to operate the Forzani retail banners as a separate business unit, similar to Mark’s and Canadian Tire Financial Services.

Michael Medline, formerly in charge of Canadian Tire’s automotive division and dealer relations, has led Canadian Tire team on this transaction and will spearhead the Forzani integration. Medline was “instrumental” in Canadian Tire’s acquisition of Mark’s in 2001 and the subsequent integration. An integration team comprised of both Canadian Tire and Forzani members has been put in place to maximize synergies. Wetmore expects “a smooth transition” between the management groups in part of extensive efforts undertaken last year to create enterprise wide, shared services.
Anticipated annualized savings are expected to be CN$25 million in 2012, increasing to a run rate of approximately CN$35 million per year by 2014.

“We consider Forzani to be a strong growth vehicle for us,” added Wetmore. “From opportunities to improve the performance and fully exploit FGL’s excellent real estate, its national banner and brand significance, and strong customer perception. Right down to enhancing our own loyalty program with the addition of Forzani customer insights.”

Asked about possible anti-trust action, Wetmore said that although the merged company will gain a sizeable shared position in categories such as hockey, Canadian retailing remains highly fragmented.

Wetmore added, “We are quite confident in our position and we think there’s a huge competition in the hockey market if you will.
During Q&A on the call, Wetmore said he didnt believe Forzani was on the selling block before Canadian Tire approached them regarding a possible sale. He also said the acquisition was not in response to the threat of U.S. and overseas retailers, such as Target and Best Buy, into the Canadian marketplace. “The truth is that competition is and always will be a factor in retail.  Just because it is in the news a lot lately is not a reason to make an acquisition,” said Wetmore. “What we need to do is focus on maintaining and growing our market share in the key categories that are part of our identity such as sports. And that means offering customers the best brands and experience with possibly can.”

Asked the same question by the Calgary Herald, Bob Forzani, who founded the retailer with his brothers in 1974, said, “Did Dicks (Sporting Goods) have a bearing on our boards mind about this deal? I can tell you absolutely not. What really impacted our board was the 50 percent premium. Pretty hard to argue with that … What this does to Dicks? I dont think a lot. I still think they will come. They are a formidable retailer in their own right … They have a business model thats very different than where were taking Sport Chek and where Sports Experts is already. Theyre more power center, very male focused, very team sports focused. We are more performance fashion focus.