Will McKesson Corp.'s Move for Uniprix Affect Shoppers Drug Mart?

The newspaper La Presse has cited rumors that McKesson Corp. (MCK), a distributor to Canadian and U.S. pharmacies, is buying Uniprix Inc., a banner group for 400 independent pharmacies in Quebec. Should McKesson buy Uniprix, says BMO Nesbitt Burns analyst David Hartley in a note to clients, it may have a bigger impact on Shoppers Drug Mart Corp. (SHDMF.PK)  than The Jean Coutu Group Inc. (JCOUF.PK), given it could remove potential independent acquisition opportunities for an aggressively expanding Shoppers network of stores.

Mr. Hartley believes that McKesson - which recently bought Proxim, a 250-store banner group - may be motivated to buy the Uniprix banner in an effort to protect against losing distribution business to an expanding Shoppers and Jean Coutu Group. Quebec is a highly coveted market given the high number of scrips (prescriptions) dispensed versus the rest of the country, he says - approximately 90,000 per drug store annually, on average, versus approximately 40,000.

Shoppers Drug Mart has expanded its Quebec storecount by 40%, to approximately 140 stores, over the past year and continues its push to grow further. Jean Coutu is looking to protect the market share of its approximately 300 stores in Quebec.

Mr. Hartley said:

Both chains have been engaged in a protracted battle to buy independents from other banners and offering sums that banner groups can’t match, despite having the first right of refusal to do so.

Should McKesson buy Uniprix, we believe it may have a bigger impact on Shoppers than Jean Coutu given it could remove potential independent acquisition opportunities for an aggressively expanding Shoppers network of stores.