Canadian grocer Metro Inc. agreed to buy pharmacy chain Jean Coutu Group Inc. for $4.5 billion to diversify its business in an industry under increasing threat from Amazon.com Inc.

Metro is offering $24.50 a share in cash and stock for Jean Coutu, the companies said Monday in a statement. That’s 15 per cent more than Jean Coutu’s 20-day average price prior to an Aug. 21 letter of intent between the retailers, they said.

The deal links two giants from Quebec and gives Montreal-based Metro an expanded foothold in the drug business, mirroring Loblaw Cos.’ purchase of Shoppers Drug Mart four years ago. Jean Coutu’s earnings have been under pressure due to new provincial regulation of generic drugs, though a compromise was recently found with the government.

“Bringing together our two highly respected and long-standing Quebec brands represents an exciting milestone,” Chairman Jean Coutu said in the statement. Metro said it expects the deal to boost earnings per share.

The shares closed last week at $24.30 after the companies confirmed they were in talks on a $24.50 per share bid. Metro said the purchase includes a 75 per cent cash component, with 25 per cent in stock.

The combined company will operate more than 1,300 stores in Canada, with pharmacy operations combined into a stand-alone division. Metro said it expects synergies of $75 million within three years.

Canadian grocers, which were locked in a price war and are just coming out of a prolonged bout of food deflation, now have to get ready for Amazon, which in June agreed to buy Whole Foods Market Inc. The U.S. behemoth is also reported to have plans to roll out its Prime Now delivery service for groceries and other items in Canada this year.

Bloomberg.com