Canadian Tire, where legions of wanna-be hockey stars have gone for their first stick or pair of skates, is embarking on a massive expansion of its sporting goods reach with the $771-million acquisition of Forzani Group Ltd.’s 500 stores.
By buying Forzani, whose banners include Sport Chek and Athletes World, the automotive and outdoor goods retailer said Monday it hopes to secure Canadian sports enthusiasts of many stripes as lifelong customers.
“Parents buy kids their first bike at Canadian Tire... but as kids get older their tastes change,” Canadian Tire president and CEO Stephen Wetmore said on a conference call.
“Not only do they want more expensive bikes, they want all the apparel and gear that goes along with their cycling activities. That’s where Forzani comes into play.”
The acquisition will give the company a presence in markets where it doesn’t have much of a stronghold — particularly the much-coveted 18 to 35 year old demographic that often prefers storefronts in shopping malls over big-box stores.
“By acquiring Forzani we gain access to a new set of customers — people at a point in their lives that typically don’t shop our stores extensively today for sporting goods,” Wetmore said.
The all-cash deal will give Canadian Tire (TSX:CTC) ownership of Canada’s largest national sporting goods retailer, which operates 500 stores ranging from general sports retail spots to more tightly focused brands like Nevada Bob’s Golf and Hockey Experts.
The transaction is valued at $26.50 per share, which is a 50 per cent premium on the closing price of Forzani’s stock on Friday. Forzani stock rose quickly in early trading on the Toronto Stock Exchange, jumping $8.62 or 49 per cent to $26.23 — close to the bidding price and a signal investors are confident the deal will go through.
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.
Canadian Tire already owns about four per cent of the shares of Forzani Group, which is based in Calgary. Together, the merged companies will have about 1,000 retail locations covering a wide array of products from gardening tools, to golf tees to winter tires.
Forzani has been weighing the options for consolidating some of its brands, and Wetmore said that while no final decisions have been made, Canadian Tire supports the move.
The acquisition of Forzani (TSX:FGL) comes about a year after Canadian Tire announced it was refocusing on its core automotive and retail businesses instead of other divisions like financial services and clothing sales at Mark’s.
The retailer began a major overhaul both in its executive suite and as a result of a decision to shift its separate units under one corporate umbrella to eliminate duplication and bloated costs.
“All the work we undertook last year to create enterprise-wide shared services (will) allow us to manage Forzani into the enterprise much more easily and efficiently,” Wetmore said.
Canadian Tire expects synergies in its supply chain, marketing and international suppliers will help save the company $25 million in expenses annually by 2012, with savings increasing to $35 million by 2014. Wetmore said the ultimate goal is to keep customers shopping at its stores throughout their lives.
Canadian Tire is an official sponsor of the NHL, and has participated in other key sponsorship agreements such as the NASCAR Canadian Tire Series and the 2010 Vancouver Olympics. The company employs more than 58,000 people with 485 stores across the country.