George Weston Limited · TSX:WN
George Weston — Merger or Acquisition (September 2018)
25 slides from George Weston's merger presentation, Sep 4, 2018
Slide 1: Spin-Out of Loblaw's Interest in Choice Properties
Spin-Out of Loblaw’s Interest in Choice Properties George Weston to Become 65% Unitholder of Choice Properties Tuesday, September 4, 2018
Slide 2: Disclaimer
Disclaimer Non-GAAP Measures This presentation uses the following non-GAAP measures: Retail adjusted earnings before income taxes, net interest expense and other financing charges and depreciation and amortization (“EBITDA”), Retail Adjusted EBITDA margin, Total Adjusted EBITDA, Total Adjusted EBITD
Slide 3: Participants
Participants Galen G. Weston Chairman and CEO George Weston Limited and Loblaw Companies Limited Richard Dufresne President and Chief Financial Officer George Weston Limited Sarah Davis President Loblaw Companies Limited Darren Myers Chief Financial Officer Loblaw Companies Limited 3
Slide 4: Reorganization of the Weston Group of Companies
Reorganization of the Weston Group of Companies Overview ▪ Under the proposed reorganization Loblaw Companies Limited (“Loblaw”) will spin out its 62% interest in Choice Properties Real Estate Investment Trust (“Choice Properties”) to Loblaw’s shareholders on a tax-free basis in Canada (the “Spin-ou
Slide 5: Transaction Steps
Transaction Steps Loblaw’s interest in Choice George Weston and the Loblaw minority Properties is distributed to Simplifies group structure shareholders indirectly own Choice George Weston with Loblaw and optimizes ownership of Properties through their shareholdings minority receiving equivalent Cho
Slide 6: Key Terms and Considerations
Key Terms and Considerations ▪ Pursuant to the Spin-out, each Loblaw shareholder will receive 0.1351 of a George Share/Unit Weston common share equivalent in value to their pro rata interest in Choice Properties Exchange ▪ George Weston’s direct interest in Choice Properties will increase to 65.4% ▪
Slide 7: Timeline and Process
Timeline and Process ▪ The proposed Spin-out is a related party transaction under Canadian securities laws ▪ The transaction requires approval by 66 ⅔ % of all Loblaw shareholders and the majority (50% + 1) of Loblaw minority shareholders (excludes George Weston and Required affiliates), in each cas
Slide 8: Transaction Highlights
Transaction Highlights Strategy is focused on enhancing Separation between major unitholder core retail, healthcare, digital and Creates stronger, more strategic (George Weston) and primary tenant payments and rewards investment thesis (Loblaw) Ownership of real estate no longer core to strategy Sup
Slide 9: Loblaw's strategy is focused on enhancing its core retail business and growing in three pillars
Loblaw’s strategy is focused on enhancing its core retail business and growing in three pillars Enhancing the core retail businesses Investing in new strategic pillars to win through new technology and capabilities amidst changing customer needs Best in Food, Health & Beauty Digital Retail Experienc
Slide 10: Over the last decade, ownership of real estate is no longer core to Loblaw
Over the last decade, Loblaw has evolved such that the ownership of real estate is no longer core to its strategy Loblaw has progressively Loblaw has also reduced its As a result, Loblaw’s capital moved away from new reliance on owned real estate investments are increasingly footage as a growth driv
Slide 11: Loblaw's strengths position it to succeed as a pure-play retailer
Loblaw’s strengths make it uniquely positioned to succeed as a pure-play retailer amidst a changing marketplace A core retailer with strong With deep customer And key capabilities in competitive differentiation… relationships… identified future growth areas ▪ 2,500+ stores Canada-wide ▪ 14+ million
Slide 12: Loblaw has a track record of positive financial performance and growth
Loblaw has a track record of delivering positive financial performance and growth Food Retail Same Store Sales EBITDA Margins Adj. Diluted EPS2 ($) (SSS) Growth Consolidated CAGR: 5% CAGR: 11% $4.53 $4.73 1.9% 8.8% 9.0% $4.05 7.8% 8.3% 1.5% $3.42 1.1% 0.6% 7.0% 7.1% 7.5% 7.5% 2015 2016 2017 2018E1 2
Slide 13: A simplified investment thesis unlocks potential value for Loblaw shareholders
A simplified investment thesis unlocks potential value for Loblaw shareholders Key Metrics – Loblaw (ex. Choice Properties) vs. Peers ▪ Loblaw retail peers currently trade at Loblaw Canadian Peer Range1 higher multiples compared to pro (ex. Choice Properties) forma Loblaw (ex. Choice Properties) EV
Slide 14: A dividend increase for Loblaw shareholders who hold their distributed George Weston shares
A dividend increase for Loblaw shareholders who hold their distributed George Weston shares Loblaw Minority Shareholder Aggregate Dividend ▪ Loblaw plans to hold its absolute $1.181 dollar dividend per share constant Loblaw post Spin-out, resulting in an increase in its payout ratio3 from 26% to 30%
Slide 15: The Spin-out is a tax efficient transaction for Loblaw and its shareholders
The Spin-out is a tax efficient transaction for both Loblaw and its shareholders Transfer of Loblaw Corporate Capital Deferral of Shareholder Gains Tax to George Weston Capital Gains Tax ▪ Choice Properties units owned by Loblaw ▪ Due to the tax-free nature of the Spin-out, have an embedded ~$640M1
Slide 16: Loblaw will deconsolidate Choice Properties from its financial statements
Loblaw will deconsolidate Choice Properties from its financial statements Status Pro ▪ Upon deconsolidation, Loblaw will no longer eliminate its Choice Properties rental Quo Forma Change expense, adjusting Retail EBITDA down by Expressed in millions $$ 2017A1 20172 $516M. Loblaw retail valuation not
Slide 17: Transaction Highlights
Transaction Highlights Strategy is focused on enhancing core Separation between major retail, healthcare, digital and Creates stronger, more strategic unitholder (George Weston) and payments and rewards investment thesis primary tenant (Loblaw) Ownership of real estate no longer core to strategy Sup
Slide 18: The Spin-out better positions Choice Properties to pursue its growth strategy
The Spin-out better positions Choice Properties to pursue its growth strategy ▪ Alignment with majority shareholder (George Weston) while maintaining important relationship with primary tenant (Loblaw) ▪ Choice Properties strategy is focused on diversifying its asset base and it plans to deploy sign
Slide 19: Transaction Highlights
Transaction Highlights Strategy is focused on enhancing core Separation between major unitholder retail, healthcare, digital and Creates stronger, more strategic (George Weston) and primary tenant payments and rewards investment thesis (Loblaw) Ownership of real estate no longer core to strategy Sup
Slide 20: The Spin-out creates a stronger investment thesis for George Weston shareholders
The Spin-out creates a stronger, more strategic investment thesis for George Weston shareholders Creates Three Distinct Pillars ▪ Historically, the George Weston investment thesis was Loblaw centric (Loblaw represents ~93% of current George Weston market capitalization1) ▪ Post Spin-out, George West
Slide 21: Spin-out will optimize real estate ownership within Weston Group
Spin-out will optimize real estate ownership within Weston Group ▪ George Weston is a long term investor in real estate, supporting investment in diversified real estate classes while also continuing to support Weston Group Choice Properties’ largest tenant, Loblaw View on Real ▪ It is not aligned w
Slide 22: Distributions from Choice Properties will provide enhanced stability and optionality for George Weston
Distributions from Choice Properties will provide enhanced stability and optionality for George Weston Annual Cash Sources at George Weston1 The Spin-out will: ▪ Free cash flow accretive – generates $239M2 of incremental cash flow from Choice Properties distributions $342M ▪ Provide additional and d
Slide 23: Issuance of George Weston shares improves public float and trading liquidity
Issuance of George Weston shares improves public float and trading liquidity George Weston Market Capitalization1 George Weston Public Float1 $15.7B $7.3B $13.0B $4.6B k Status Quo Pro Forma Status Quo Pro Forma ~21% increase in market capitalization ~57% increase in public float 23 1. Based on 5-da
Slide 24: Credit ratings for Loblaw, George Weston and Choice Properties not expected to change
Credit ratings for Loblaw, George Weston and Choice Properties not expected to change Loblaw George Weston Consolidated Net Debt / Adjusted EBITDA1,2,3 Consolidated Net Debt / Adjusted EBITDA1,2,3 3.3x 2.7x 3.3x 3.3x Status Quo Pro Forma Status Quo Pro Forma ▪ Loblaw leverage will decline due to ▪ G
Slide 25: Transaction Highlights
Transaction Highlights Strategy is focused on enhancing Separation between major core retail, healthcare, digital and Creates stronger, more strategic unitholder (George Weston) and payments and rewards investment thesis primary tenant (Loblaw) Ownership of real estate no longer core to strategy Sup
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