Montreal-based Metro Inc. announced it has entered into a definitive agreement to acquire The Jean Coutu Group


  • Montreal-based Metro Inc. announced it has entered into a definitive agreement to acquire The Jean Coutu Group (not rated).
  • Under the terms of the Transaction, Jean Coutu Group shareholders will receive an aggregate consideration of approximately C$4.5 billion (75% in cash and 25% in Metro Inc. common shares).
  • We consider Jean Coutu the leading pharmacy retailer in Quebec, operating a network of franchise stores that include 419 locations (more than 90% in Quebec).
  • As a result, we are affirming our 'BBB' long-term corporate credit and senior unsecured debt ratings on Metro Inc.
  • Pro forma for the proposed acquisition, we expect adjusted debt-to-EBITDA of about 3.0x in fiscal 2018.
  • The stable outlook reflects our expectation that Metro will improve adjusted debt-to-EBITDA to the mid-2x area within two years of completing the acquisition

The affirmation reflects our view that Metro's adjusted debt-to-EBITDA will 
increase temporarily to fund the acquisition of The Jean Coutu Group, and that 
we expect leverage will return to the mid-2x area in fiscal 2019. Metro Inc. 
has access to about C$3.4 billion in committed bank facilities to finance the 
cash portion of the transaction. However, we assume the long-term financing of 
the cash consideration to include roughly C$1.7 billion of permanent debt 
financing, about C$1.6 billion of net proceeds from the sale of its equity 
investment in Alimentation Couche-Tard Inc., and about C$190 million of cash 
held at Jean Coutu. Our assumed financing of the cash consideration 
incorporates Metro's proven track record of adhering to a long-term adjusted 
net debt-to-EBITDAR target of 2.5x. Our forecast also assumes modest pro forma 
adjusted EBITDA growth from positive same-store-sales (SSS) growth and C$65 
million–C$75 million of annual synergies realized within two years of closing 
the acquisition. In addition, we assume the company will generate 
discretionary cash flow of C$300 million–C$350 million in fiscal 2019 that 
should facilitate debt reduction.