Press Release: Canadian Tire Corporation, Limited

Press Release: Canadian Tire Corporation, Limited
Date of Release: Dec 19, 2001
Confirms at A (low) and R-1 (low)
Sean Mason, CFA, David Schroeder / 416-593-5577 ext.2226, ext.2232 /
e-mail: smason@dbrs.com
Rating		Trend		Rating Action		Debt Rated
A (low)	Stable		Confirmed		Sinking Fund Debentures
A (low)	Stable		Confirmed		Unsecured & Medium Term
Notes
Pfd-2 (low) y	Stable		Confirmed		Class A
Preferred Securities
R-1 (low)	Stable 	Confirmed		Commercial Paper

The ratings for Canadian Tire Corporation, Limited ("CTC" or "the
Company") are confirmed as above, all with Stable trends, following the
announcement of the Company's proposed bid to acquire Mark's
WorkWearhouse Ltd. ("Mark's") for a total purchase price of $116
million. The transaction's effects on the balance sheet, including
operating lease adjustments, are expected to be tolerable and ratios
should remain within acceptable parameters, with the funding
requirements more than offset by the $300 million in proceeds from the
recent monetization of certain real estate assets (executed November 30,
2001, through the formation of a partnership with a third-party investor
group involving a portfolio of owned retail properties). 
While DBRS is comfortable for the time being with the impact on the
financial profile, there are concerns regarding the acquisition as it
marks a change in CTC's long-standing operating strategies, with Mark's
business being outside of its core areas of expertise. The senior
management team is being retained but CTC's management may be affected
to some degree. Mark's does not appear to have structural problems but
it is unclear at which point in its evolution the concept lies, having
reasonable recent results with steady sales and EBIT growth over past
five years (sales near $500 million in 2001). However, Mark's
profitability contribution is minimal in relation to CTC's consolidated
results and its operations produce little free cash flow after capital
expenditures. While the transaction is anticipated to be cash accretive
in F2002 before anticipated cost synergies, in aggregate this would only
represent about 10% of CTC's consolidated sales and income. Certain
similarities between the two companies target customers exist and
geographically Mark's fits well with CTC's store base, with over 300
stores (about one-third franchised, similar to its own retail
operations) in two main divisions across Canada (Work World and Mark's
WorkWearhouse). Mark's product offering is of a non-fashion orientation
(primarily men's footwear/work apparel, and casual clothes and jeans)
but this may modestly raise exposure to economic retail cycles, with
CTC's core operations traditionally considered as less sensitive to this
than peers.
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