JEAN COUTU GROUP INC CL A SV (PJC-A.TO)

The troubled Canadian drug store operator, PJC-A.TO announced that it unloads all of its US drug stores to Rite Aide (RAD) for a total consideration of $3.4 billion (cash, stock and assuming debt). While this represents an admission of failure on PJC-A.TO, this move is positive on PJC-A.TO. Its 370+ Canadian drug stores are very healthy indeed, with SSS grows more than 5.5% in July and has been consistently growing at 5% level. Coutu family has a very strong reputation for excellent operator and there will be some organic growth opportunities in Quebec. This sale will address its balance sheet issue and will unlock the value of its Canadian stores. Its Canadian operation will probably worth about C$15/share, plus the 30% of RAD. There's also potential to turn it into a trust (a lot of bankers are knocking its doors), which could increase its share to C$20/share with a decent yield (7%-8%). This is also a better way to long RAD. I may add some PJC-A.TO right on here.

position: long PJC-A.TO