Shoppers IPO Stumbles Out of the Gate
Hollie Shaw
Financial Post
November 22, 2001
The highly anticipated public offering of Shoppers Drug Mart Ltd. stalled at the starting gate yesterday when the shares fell on their first day of trading on the open market, stoking fears that the issue was overpriced.
Shares in Toronto-based Shoppers [T.SC], which has 800 franchised outlets across the country, closed the day 65¢ below their IPO price of $18 and traded as low as $16.85.
Shoppers raised $540-million this week through the sale of 30 million shares led by underwriter CIBC World Markets Inc.
The country's largest drugstore chain, a former subsidiary of Imasco Ltd. bought for $2.55-billion in 1999 by New York investment firm Kohlberg Kravis Roberts & Co., chose to make an offering at a time when investors have grown increasingly wary of buying new issues.
The Toronto Stock Exchange says Canadian firms sold $7.4-billion in IPOs in the first 10 months of the year, a 5.7% drop from the same period last year. The TSE 300 composite index has fallen 18% this year.
When the offering was priced at $18, the lower end of its initial guidance, some analysts believed the issue's price was still too high, and expressed pessimism about the company's ability to grow relative to its competitors in the consumer products sector.
Denyse Chicoyne, an analyst at BMO Nesbitt Burns, said Shoppers would need to cut its dispensing fees for prescription drugs and reconfigure parts of its store network to improve its competitive position.
eResearch, which provides independent equity research, said fair value for the shares lay in the range of $15 to $17.
Keith Howlett, a retail analyst at Research Capital Corp., said in a Nov. 6 report that "the growth rate of Shoppers is significantly lower than that of Loblaw."
Mr. Howlett estimated that Shoppers' earnings before interest, taxes, depreciation and amortization will have increased by 78% in the four years ending next month, compared to a 170% percent rise at Loblaw, which has added pharmacies and broadened its stable of health products in the last five years.
Last year, Shoppers had sales of $4.5-billion, giving the company about 20% of the country's $23-billion drugstore market.
Chief executive Glenn Murphy, who was hired by KKR in June, cut head office and regional staff last month in an effort to streamline the company before it went public.
Mr. Murphy, a veteran merchandiser who worked for 14 years at Loblaw Cos., helped to oversee the integration of 300 Provigo Inc. stores into Loblaw after it acquired the Quebec food chain in 1999. |
