Shares of EQB jumped 9% as Loblaw signals plans to lift its stake
Loblaw Companies Limited has established an automatic share purchase plan (ASPP) to acquire additional common shares of EQB Inc., the parent company of Equitable Bank, sending EQB stock surging more than 9% on the Toronto Stock Exchange (TSX).
EQB shares climbed $12.54 to $148.43 by mid-afternoon following Loblaw's disclosure of the plan on July 14. This could lift the retailer's ownership in Canada's seventh-largest Schedule I bank to as much as 24.9% of shares outstanding.
Loblaw entered the ASPP through a broker in accordance with TSX requirements and applicable Canadian securities laws.
Under the plan, Loblaw's broker is authorised to purchase EQB common shares within parameters set by Loblaw during windows when the company holds no material non-public information about EQB.
From grocery giant to bank shareholder
Loblaw received 7,237,601 EQB common shares and $234.5 million in cash on July 1, when EQB closed its $800 million acquisition of President's Choice Financial from Loblaw. Including the 1,220,000 shares acquired before the transaction closed, Loblaw's pre-ASPP holdings totalled 8,457,601 EQB shares.
The ASPP permits Loblaw's broker to accumulate additional shares up to an aggregate cap of 10.6 million, or 24.9% of shares outstanding, whichever is lower, at which point the plan terminates unless wound down earlier.
Loblaw may also buy EQB shares on a discretionary basis outside the ASPP, to the extent permitted by applicable law.
The Ontario Securities Commission (OSC), acting as principal regulator, granted exemptive relief so that the 7,237,601 shares issued at the July 1 closing would be excluded from the 12-month look-back calculation applied to normal-course market purchases. That's a technical concession designed to prevent routine buying from triggering standard market-purchase restrictions.
What the Loblaw stake means for the broker channel
For Canada's mortgage brokers, the deepening Loblaw investment reinforces the capital backing behind one of the channel's key alternative lenders.
Equitable Bank has built its franchise around residential mortgages, including alternative and uninsured products widely used by brokers, as well as commercial lending, reverse mortgages, and savings solutions, according to EQB Inc.
The PC Financial acquisition added approximately $5.8 billion in assets and $800 million in direct retail deposits to Equitable Bank's balance sheet, according to EQB Inc.
The combined business now counts nearly 4 million customers and holds exclusive rights as the financial-services partner to the PC Optimum loyalty program, which has more than 18 million active members.
Two Loblaw nominees joined the EQB Board of Directors upon closing: Galen G. Weston, Chairman and Chief Executive Officer of George Weston Limited in Toronto, and Richard Dufresne, President and Chief Financial Officer of George Weston Limited.
PC Bank customers are expected to transition to the EQ Bank platform over the coming months, with no immediate changes to existing products planned. EQB's third-quarter results will include one month of earnings contribution from the acquired business.
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