Our 2017 DOTY shortlist

Many are considered, but only one M&A transaction can be chosen Deal of the Year. Here’s a look at the next three closest contenders and why they missed the cut

FIRST RUNNER-UP Metro Inc.-Jean Coutu Group Inc. When you consider the other recent grocery store-pharmacy tie-ups (most notably, Loblaw Cos. Ltd. buying Shoppers Drug Mart back in 2013), Metro Inc.’s (TSX:MRU) $4.5-billion friendly deal for the Jean Coutu pharmacy empire was too much of a copycat deal to earn DOTY honours. That it was triggered, in part, by Quebec drug retailing reforms limiting Jean Coutu’s growth prospects (via its ProDoc generic drug manufacturing business) in its home province is a different wrinkle. But the story from here is the same go-big-or-go-home pursuit embraced by rivals Loblaws and Empire Co. Ltd. Montreal-based Metro is now theoretically in better shape to compete with those larger chains—as well the new elephant in the room, Amazon.com Inc., following its purchase of Whole Foods. Meanwhile, the Coutu sale is the end of an era for founder Jean Coutu, 90, who received $2.5 billion in cash and stock in the deal. Son François now leads Metro’s pharmacy operations as a standalone division.

SECOND RUNNER-UP Intact Financial Corp.-OneBeacon Insurance Group. We liked this relatively modest deal as a DOTY finalist because it shows some pluck—not exactly a common thing in the insurance industry. Toronto-based Intact Financial Corp. (TSX:IFC) has made a big leap into the U.S. specialty insurance market with the $2.3-billion purchase of Plymouth, Minn.-headquartered OneBeacon from previous owner White Mountains Insurance Group of Bermuda. The deal is a diversification play for Intact, both geographically and in terms of its business lines. Intact currently holds about 17% of the Canadian home, auto and business insurance markets, with specialty products making up just 8% of its total book. In acquiring OneBeacon, it adds a deep portfolio of specialty offerings in technology, government, entertainment, healthcare, financial services and marine sectors. Intact, led by CEO Charles Brindamour, says it made the deal to grow that specialty business in the U.S., diversify its offerings in the Canadian market and to better equip itself to compete against larger international insurers.

THIRD RUNNER-UP Cenovus Energy Inc.-ConocoPhillips Co.’s oilsands and Alberta Deep Basin natural gas assets. If deal size was all we went by, this one might have been our Deal of the Year. But it’s impossible to overlook the fact that this deal, for significant oilsands and gas assets in a soft market, has also been an equally big early disappointment for investors—so much so that between the time the $17.7-billion deal was announced in March and mid-summer, Cenovus Energy Inc. (TSX:CVE) shares were down more than 40%. In that period, the CEO who made the deal, Brian Ferguson, announced his resignation; observers questioned the board for approving the transaction; and the company began a planned sell-off of assets to lessen its growing debt burden. Cenovus shares did make up about half their losses between September and early November—in part due to some successful asset sales and, most recently, the hiring of Alex Pourbaix as Ferguson’s replacement as CEO. Pourbaix, who previously spent 27 years as a top executive at TransCanada Corp., was a surprise choice, but the markets initially seemed encouraged, reading the move to mean that further asset sales and a commitment to cost-cutting and debt reduction will prevail.

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