Sobeys parent Empire agrees to buy majority stake in Longo’s for $357M - Toronto Star

The Empire is growing.

Sobeys’ parent Empire Co. announced Tuesday that it has reached an agreement to buy 51 per cent of independent grocery chain Longo’s and its online service Grocery Gateway in a deal worth $357 million.

The deal adds Longo’s 36 Ontario-based stores to Empire’s growing collection of brands, including Sobeys, Farm Boy, Foodland and FreshCo.

Voila, Empire’s online grocery delivery service, will continue as a separate brand.

Longo’s and Grocery Gateway will continue to be run as separate brands, and will be operated by current Longo’s management, including Longo’s CEO Anthony Longo.

“You’ve partnered with that brand for a reason. There’s no way we’re going to screw up that brand value. Longo’s is a jewel,” Empire CEO Michael Medline said in a joint interview with Longo. “The trick to integrating something like this is that you don’t integrate.”

Longo said his father Tommy, and uncles Gus and Joe would have never envisioned what the single fruit stand they started at Yonge Street and Castlefield Avenue in 1956 would someday become.

“I think they’d be very proud of what we’ve done today. There are three generations of the family working here, and we’re excited about the future,” said Longo.

The company wasn’t formally for sale, even though Longo said plenty of suitors had come calling over the years.

“Over the last 20 years, people have called, but the calls were very short, because we weren’t for sale,” said Longo, who wouldn’t identify any of the callers.

The deal came about as Medline and Longo developed a friendship after Medline took over as Empire CEO. As a longtime Canadian Tire executive without any grocery experience, he valued Longo’s advice on the industry. Eventually, the topic of a potential partnership came up.

“We said ‘what would it look like if we came together?’ ” said Longo, adding talks began in earnest over the last year.

Empire will pay for the deal with $125 million in shares, $197 million in cash, with the remaining $35 million being financed by debt. The deal also gives Empire the ability to buy 100 per cent control of Longo’s within 10 years.

The deal is the second major acquisition by Nova Scotia-based Empire during Medline’s tenure. In 2018, Empire bought control of Farm Boy, a year after Medline arrived from Canadian Tire.

“In 2017, I told the board that we were underrepresented in Ontario, and needed better solutions for e-commerce. Today, we can compete with anyone in Ontario, and online,” Medline said.

Before Medline’s arrival, Empire suffered a major misstep with the purchase of western-based grocery chain Safeway. Empire was forced to write down the value of its Safeway purchase by almost $3 billion after a disastrous integration led to stock shortages and other logistical problems.

Medline vows the Longo’s move will be more like the Farm Boy acquisition than Safeway.

“We’re happy to have Safeway as part of the Empire family, but it’s fair to say that wasn’t the smoothest integration,” said Medline.

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Last week, Empire announced blockbuster fiscal third quarter results. Empire, which has 1,500 stores across the country, saw quarterly earnings rise more than 50 per cent to $187.3 million, up from $120.9 million in the same period a year ago. Revenue also rose to $7 billion, from $6.4 billion a year ago, as Canadians spent more of their household food budget on groceries because of the COVID-19 pandemic.

Empire also got a boost from the recent launch of Voila by Sobeys, an online grocery delivery service powered by technology from U.K.-based Ocado Group. Empire signed a deal with Ocado in 2018, but it wasn’t until the summer of 2020 that Voila was launched.

Longo’s had sales of roughly $1.1 billion for the year ending Feb. 28.

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2021-03-16 13:11:37Z
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