October 23, 1990

Zellers clinches deal to take over Towers Hudson's Bay beats out Woolworth

Globe & Mail, Canadian Press and staff

Towers Department Stores Inc., a chain of 51 discount department stores in Eastern Canada, is to be sold to Zellers Inc., a division of Hudson's Bay Co.

Hudson's Bay and Oshawa Group Ltd., both of Toronto, say they have " executed a definitive agreement for the sale of Towers to Hudson's Bay by Oshawa."

The price was not disclosed.

Ross Cowan, retail analyst for Levesque Beaubien Geoffrion Inc., estimated the price may be up to $150-million. He described the sale as a good fit. "I think it's a great opportunity for Zellers."

The sale is to close next month, subject to regulatory approval. Hudson's Bay said the Towers stores will be merged with Zellers next spring.

The purchase includes 51 department stores in Ontario, Quebec and the Maritimes, 17 in-store pharmacies, 46 restaurant operations and offices in Toronto and Montreal. In Quebec, the Towers stores are called Bonimart.

The pharmacies and restaurants are integral parts of the department stores and therefore included in the sale, said Sam Crystal of Oshawa Group. The Towers distribution centre in Mississauga is excluded.

Mr. Cowan said he didn't expect the Bureau of Competition Policy to stop the sale, even though the companies have such a large piece of the discount department store sector. The discount stores compete with many other types of stores, including full-scale department stores, he said.

Mr. Cowan added that the competition bureau may ask that a few of the stores in some communities be sold because of a possible over- concentration in those communities. He didn't know which communitites they might be.

Oshawa Group "will concentrate on what we've always concentrated on - food," Mr. Crystal said.

Allister Graham, chairman of Oshawa Group, which runs Food City and IGA supermarkets, said the deal reflected both the value of Towers' assets and the strategic location of its stores.

Gary Lukassen, chief financial officer of Hudson's Bay, said: "The acquisition is an excellent strategic fit for our Zellers division and represents a significant acceleration of Zellers expansion plans."

The addition of the Towers-Bonimart stores gives the 208-store Zellers chain 18 per cent of the department store market in Canada, behind only Sears Canada Inc., which has a 20 per cent share. Eaton's has about 15 per cent of the market.

During negotiations between Hudson's Bay and Oshawa Group, F. W. Woolworth Co. Ltd. of Toronto, a wholly owned unit of Woolworth Corp. of New York, expressed an interest in bidding for Towers. But earlier this month Mr. Graham of Oshawa told Woolworth a letter of intent signed with Hudson's Bay effectively barred his firm from talking with Woolworth.

A Woolworth spokesman said yesterday he had no comment on the planned sale. He added that his company regrets that Oshawa resisted Woolworth's request for information, which prevented Woolworth from making an opposing bid.

Hudson's Bay, controlled by the Thomson family through Woodbridge Co. Ltd., owns Zellers, The Bay and Simpsons.

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