Katz Group to sell independent, franchise businesses to McKesson

Deal expected to close in the first half of 2012

TORONTO — In an effort to strengthen its focus on its corporate-owned Rexall and Rexall/Pharma Plus store network, Katz Group Canada has signed a definitive agreement to sell its banner pharmacy business, Drug Trading, and its franchise pharmacy business, Medicine Shoppe Canada, to McKesson for about CAD $920 million in cash.

The transaction, which is subject to customary closing conditions, including the receipt of Canadian regulatory clearances, is expected to close in the first half of 2012.

As part of the deal, McKesson also is entering into other ancillary agreements with Katz Group. Both Drug Trading and Medicine Shoppe Canada offer purchasing, merchandising and other value-added programs to independent owner-operated pharmacies in Canada.

Under the terms of the agreement, McKesson substantially will acquire all of the assets of Drug Trading, the shares of Medicine Shoppe Canada and a joint ownership interest in ProPharm’s pharmacy software application. ProPharm will work with McKesson through a transition period to ensure McKesson can continue to efficiently support independent banner members and franchisees when the transaction closes and thereafter. At the closing of the transaction, the banner and franchise operations will be integrated into McKesson’s Canadian pharmaceutical distribution and services business, which is part of McKesson’s Distribution Solutions segment, McKesson said.

McKesson Canada currently operates a number of banner groups, including Proxim, Associated Retail Pharmacy and Family Health Care Pharmacy.

“This transaction unlocks significant value through the sale of two outstanding but non-core assets. We will intensify our focus on our corporately owned Rexall and Rexall/Pharma Plus store network to accelerate the growth of our Rexall brand and the value proposition that it represents to our patients and customers.  We will also accelerate the growth of our related real estate interests,” stated Daryl Katz, chairman of Katz Group.

To further bolster its Rexall network, Katz Group also announced that its Rexall division has acquired Dell Pharmacies, an 18-store chain operating in southern Ontario with approximately $70 million in annual sales. Katz Group stated that the acquisition is highly complementary to Rexall’s existing store base in that market and the Dell stores will be integrated into the Rexall network.

Since 2004, Katz Group has redesigned and repositioned more than half of its more than 400 corporate-owned Rexall and Rexall Pharma Plus pharmacies, while introducing a host of customer and patient services, including medication compliance and preventive care.

Katz Group will continue to supply Drug Trading’s Guardian and I.D.A. banners and Medicine Shoppe Canada franchisees with Rexall-branded over-the-counter and health and beauty products. McKesson will continue to serve as the primary pharmaceutical distributor for Katz Group’s corporate-owned stores, Drug Trading and Medicine Shoppe Canada.

“We have every confidence that Drug Trading’s independent pharmacy members and Medicine Shoppe’s franchisees will enjoy market-leading pharmacy support and will continue to grow and prosper under McKesson’s leadership. Katz Group Canada will also continue to work closely with McKesson on a number of strategic initiatives that we believe will create significant long-term value for both companies,” Katz stated.


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