October 8, 1990

Oshawa will sell Towers/Bonimart

Supermarket News
 

TORONTO (FNS) - In a move that surprised the industry here, Oshawa Group said it is getting out of department store retailing with an agreement to sell its Towers/Bonimart stores to Hudson's Bay Co.

But a bidding war may erupt because Woolworth Corp., New York, said it wants its Canadian subsidiary to have a chance to bid on the chain.

There is a letter of intent between Oshawa and Hudson's Bay outlining the general terms of the proposed sale, but the final agreement is subject to further substantive negotiation, definitive documentation and regulatory approval, Oshawa said in a statement.

Financial terms of the sale are not being disclosed, but analysts estimate the chain could be worth between $65 and $129 million (U.S.).

The deal's closing date is next month, and includes 41 Towers department stores in Ontario and eastern Canada, and 10 Bonimart stores in Quebec. The stores sell a wide selection of value-priced merchandise.

The deal came as a surprise to industry observers because the stores were not on the sales block, and the news prompted F.W. Woolworth Co., Toronto, a subsidiary of New York-based Woolworth, to rush a letter to Oshawa executives last Wednesday (Oct. 3) asking for the chance to bid.

"We are disappointed to learn that you are contemplating selling the Towers operation to Zellers, and we're surprised that we haven't been given an opportunity to make an offer," the Woolworth letter said.

"In fairness to your company and its shareholders, we would like to have the same information regarding the Towers operation made available to us as has been made available to Zellers, in order to assess whether we would be prepared to make an offer."

Woolworth operates 462 general merchandise and specialty stores in Canada, including 146 Woolco full-line promotional department stores. Woolworth Canada reported operating profit of $106 million for the year ended Jan. 27, 1990, up from $83 million the year before.

Sam Crystal, vice president, public affairs, for Oshawa would not comment on the Woolworth letter or whether other retailers have expressed interest in the Towers/Bonimart chain.

Oshawa was approached by Toronto-based Hudson's Bay Co., which owns the Bay, Simpsons, Zellers, and Fields department stores in Canada. If the tentative deal is successful, Hudson's Bay plans to convert the Towers/Bonimart stores to the competing Zellers format as part of an aggressive expansion program, said Gary Lukassen, executive vice president of Hudson's Bay.

There are 208 Zellers discount department stores in Canada, but Hudson's Bay plans to expand the chain to over 300 stores. The Towers/Bonimart chain is attractive because it has strong positions in metropolitan Toronto, Lukassen said.

Zellers reported operating profit of $51 million on sales of $860 million for the six months ended July 31, 1990, up from profit of $39.5 million on sales of $781 million for the same period in 1989. Zellers' operating profit for 1989 increased 26% to $154 million on sales of $1.8 billion.

Lukassen said Zellers currently has about 14% or 15% of the department store market in Canada, and the Towers purchase will increase it to about 18%

Crystal said Oshawa is selling the stores in order to concentrate on its core businesses of food wholesaling and retailing, and drug retailing.

"The transaction makes good sense for both sides because they are general merchandise retailers, and most of our growth has been in food and drug stores," Crystal said.

Sales by the Towers/Bonimart stores for the fiscal year ended Jan. 27, 1990, were $475.8 million, up 7.4% from $443 million the year before. Sales this year by Oshawa's general merchandise division, which includes drug retailing, have been adversely affected by a slow retail climate.

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