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Canadian Tire wants high end consumers

Canadian Tire Corp. (CTC-T) said Monday it would pay $771 million to acquire Forzani Group Ltd, Canada's No.1 sporting goods retailer.
   
The friendly deal will give Canadian Tire, one of Canada's biggest retailers, a commanding presence in sporting goods at a time when U.S. retailers are looking for growth opportunities north of their border.
   
"Canadian Tire is on offense," said Stephen Wetmore, the company's chief executive, referring to the retailer's decision to expand aggressively into the sporting goods segment.
   
Forzani Group, with annual revenue of about s1.4 billion, operates more than 500 retail outlets across Canada, under the Sport Chek, Sports Experts Atmosphere and National Sport banners.
   
Canadian Tire, which will operate Forzani as a separate business unit, already carries sporting goods in its departments. The flagship Canadian Tire chain, founded in 1922, also features automotive, gardening, houseware and hardware.
   
With the addition Forzani, the company says it would have more than 1,000 outlets carrying sporting goods.
   
Canadian Tire will pay $771 million , or $26.50 per share, in cash for the 96 percent of shares it does not already own of Forzani. The price represents a premium of 50 percent over Friday's close.
   
"It's a good price. I don't think an American company will step up," Octagon Capital analyst Bob Gibson said.
   
Canadian retailers were shaken awake in January when U.S. retailer Target Corp. (TGT-N) announced a $1.83 billion deal to take over Canadian leases for Zellers stores owned by Hudson's Bay Co, North America's oldest company. That deal signaled the No. 2 U.S. discount retailer's intention to move aggressively into Canada, a move long-anticipated by the industry.
   
Canadian Tire sees annual savings with the deal of some $35 million, with about $25 million expected in 2012.
   
It will finance the deal with $500 million of cash on hand and the rest with short-term financing. It expects to return to pre-acquisition leverage levels within 18 to 24 months of the deal closing.
   
Canadian Tire was advised by BMO Capital Markets while Forzani was advised by Greenhill & Co Canada Ltd.

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