In Brazil, drugstore companies Raia and Drogasil agree to merge; with 4.1B reais of combined gross revenues, over 700 stores nationwide, Raia Drogasil to become country's No. 1 drugstore chain, 7th largest retail group
August 2, 2011
– Raia S.A. (“Raia”) and Drogasil S.A. (“Drogasil”, and, jointly with Raia, the “Companies”), in accordance with the provisions of CVM Instruction No. 358/2002, announce that on August 2, 2011, a merger and other covenants agreement (the “Merger Agreement”) was entered into by the Companies and by the shareholders which exercise the control of each of them.
By means of a merger of equals (the “Merger”), this agreement shall result in the creation of RAIA DROGASIL S.A. (“RAIA DROGASIL”), which control shall be shared by the shareholders which currently exercise the control of the Companies (families Pires Oliveira Dias and Galvão by Drogasil, the Pipponzi family and funds managed by Pragma and Gávea by Raia), in accordance with a shareholders agreement which shall bind shares in equal number held by the shareholders which exercise the control of each of the Companies.
This Merger is originated from shared values an vision by two Companies with great tradition in the drugstore market (Raia: 106 years, Drogasil: 76 years) and by its main shareholders, who are members of the founding families of each of the Companies.
With R$ 4.1 billion of combined gross revenues and R$ 244 million of “EBITDA” in the last 12 months (base March 31, 2011 “LTM”) and over 700 drugstores in nine Brazilian States, in which approximately 78% of the Brazilian drugstore market is based, RAIA DROGASIL is born as the 7th largest retail group in Brazil, according to Brazilian publication “Exame” Top 500 Edition 2010 (Exame Maiores e Melhores de 2010), and as the absolute leader in the drugstore market of the country. Its combined market share in the last 12 months (base March 31, 2011 “LTM”) was of 8.3% of the Brazilian drugstore market, according to “IMS Health”.
RAIA DROGASIL shall operate under trademarks Droga Raia and Drogasil, two leading trademarks with strong identity, complementary geographical presence and high growth potential. This combination of assets, talents and competences shall allow RAIA DROGASIL to obtain synergies as to increment the competiveness of both trademarks before customers and to achieve economical benefits for the company, shareholders and customers.
RAIA DROGASIL shall remain listed on the BM&FBOVESPA’s Novo Mercado segment and shall have a free float of approximately 50% of its capital stock. This Merger shall also result in a company with a high level of liquidity.
The Bylaws of RAIA DROGASIL shall establish a mechanism of protection of share ownership dispersion, in the terms set forth in Articles 31, 36 and respective paragraphs of the Bylaws of Raia.
A shareholders agreement shall be entered into by the shareholders of RAIA DROGASIL, for a 10-year term, and shall bind shares corresponding to 40% of its capital stock, which shall be subject to lock-up throughout its entire term. The shareholders which exercise the control of each Company shall contribute, each group, with half of the bound shares. The total bound shares shall be progressively reduced until the 5th anniversary of the agreement, when the bound shares shall represent 30% of RAIA DROGASIL capital stock, always keeping the parity of the bound shares of the Companies’ shareholders. Lastly, the remaining shares of each controlling shareholder shall follow the vote of the controlling group in the shareholders meetings.
The Board of Directors of RAIA DROGASIL shall be composed of nine members. Each group of shareholders shall appoint three members, and the remaining three chairs shall be assigned for independent members. The Board shall have four permanent committees for management support, which shall be presided by the Chairman of the Board of Directors: People, Operations, Expansion and Audit.
It was also agreed that Mr. Antônio Carlos Pipponzi, current Chief Executive Officer of Raia, shall be elected Executive Chairman of the Board of Directors and Mr. Cláudio Roberto Ely, current Drogasil’s Investor Relations Officer and CEO shall be the Chief Executive Officer of RAIA DROGASIL. The executive officers to be appointed shall be chosen from both Companies. Mr. Eugênio De Zagottis, current Investor Relations Officer of Raia, shall be appointed as the Investor Relations Officer of RAIA DROGASIL.
The Merger of the Companies shall take place by means of a merger of Raia’s shares by Drogasil. The shares of Drogasil, which shall be called RAIA DROGASIL S.A., shall remain listed on the BM&FBOVESPA’s Novo Mercado segment. The exchange ratio applicable to the shareholders of Raia in the merger of their shares by Drogasil shall be of 2.29083790 common shares issued by Drogasil for each common share issued by Raia. The capital stock of RAIA DROGASIL shall be held by the current shareholders of Drogasil in the proportion of 57% and of Raia in the proportion of 43%. Due to the merger of shares, new shares of Drogasil shall be issued, pursuant to the exchange ratio above mentioned, on behalf of the shareholders of Raia, which shall be a wholly-owned subsidiary of RAIA DROGASIL.
This exchange ratio already takes into account the decision of payment of interest on own capital (“IOC”) to the shareholders of both Companies, relating to the first half of 2011 (R$ 16,550,000.00 gross IOC already declared by Drogasil and R$12,890,000.00 gross IOC to be declared by Raia until the closing of the transaction).
The existing stock subscription/acquisition options, issued by both Companies in accordance with their respective policies of compensation and retention of executives shall be exercised or cancelled until the date of the merger of shares and, if exercised, shall contemplate exclusively treasury shares, being, therefore, neutral for the purpose of the transaction, not affecting said exchange ratio.
The execution of the Merger Agreement was unanimously authorized by the Boards of Directors of the Companies and the commitments established in the Merger Agreement are subject to the fulfillment of obligations and conditions set forth in the Merger Agreement, including, but not limited to a legal, accounting and financial due diligence of the Companies and the approval of the merger of Raia’s shares by Drogasil by both Companies in their respective General Shareholders Meetings.
The Merger Agreement was entered into by the shareholders which exercise the control of the Companies which have agreed to take all measures for its consummation, including voting favorably for the merger of Raia’s shares by Drogasil in the General Meetings of the Companies which shall be called in order to address this matter. The Merger Agreement may be terminated in case the merger of shares is not approved until December 31, 2011.
The Merger Agreement shall be submitted to the approval of the Brazilian antitrust authorities (Conselho Administrativo de Defesa Econômica – CADE, Secretaria de Direito Econômico – SDE and Secretaria de Acompanhamento Econômico – SEAE).
Further information related to the Merger, required under CVM Instruction No. 319/99 and other applicable rules, including with regards to the withdrawal rights of shareholders of both Companies, shall be contemplated by a new material fact notice to be eventually released.
The documents related to the Merger will be available for the shareholders of the Companies involved as of the publication date of calls for the extraordinary general shareholders meetings of the Companies which will address the merger of shares of Raia by Drogasil, in accordance with applicable rules.