Jean Coutu Group President and CEO François Coutu speaks to shareholders at the company’s annual general meeting in Varennes, Que., in July, 2016.Graham Hughes/The Canadian Press
The founder of pharmacy chain Jean Coutu Group Inc. and his son are lashing out against the Quebec government for ignoring their suggestions for drug reforms and say investors are losing interest in the company because of the uncertainty being created by lawmakers.
In an interview with the French-language TVA network, Jean Coutu and his son François Jean Coutu, chief executive of the company, said they were insulted that the government ignored regulatory proposals put forward by their company and others. They said their experience with Quebec has left a sour taste and that their family, which controls the company through multi-voting shares, is re-evaluating the business as a consequence.
"We're seeing that our shareholders no longer want to invest in Jean Coutu," François Coutu told TVA. "They've kind of avoided us a bit lately and I understand why. There is uncertainty in the industry" created by government.
Coutu shares gained 1.4 per cent on the Toronto Stock Exchange Wednesday to close at $21.09. That's roughly the price level they were at when Mr. Couillard's Liberals took power in April, 2014. The shares are up roughly 14 per cent over the past year.
Faced with regulatory changes beyond its control and determined to go it alone so far in an era of retail consolidation, Jean Coutu Group appears to be at a crossroads. With about 383 stores in Quebec and a valuable brand, the company has become an institution in the province. But as the TVA interview made clear, the company is re-examining whether what has been built is on solid ground.
The uncertainty being created by government "is making us reconsider a number of things, including our investment here," François Coutu said, adding the company made a decision to spend $194-million on a new headquarters and distribution centre in Varennes, Que., years ago because it was confident in industry conditions in the province at the time. "We had the desire to continue developing. And I admit that unless this [situation now] is corrected in a clear way, it's made us lose our desire to work here in the long-term."
Asked if the family is angry enough that it would consider selling the company, François Coutu said his relatives are "asking themselves questions." His father suggested they've already received buyout offers but rejected them. "There might be hungry wolves around our company. But we're French-Canadian enough to say no."
Quebec is undertaking a broad reform of its health institutions that includes changes aimed at lowering the public cost of medication. One change includes the government assuming power to tender for generic drugs.
Profit at Jean Coutu's generic-drug manufacturing subsidiary Pro-Doc is now being squeezed by the reform and the company nixed a share buyback in the first quarter of fiscal 2017 as it weighed the regulatory situation.
"The grinding pressure of health-care reform appears likely to suppress Jean Coutu Group's near-term earnings-per-share growth," Desjardins Securities Inc. analyst Keith Howlett said in an Oct. 12 note. With prescriptions-per-store of 220,000 a year in fiscal 2016 and strong front store sales, the company has attained its peak performance in drug retailing and needs to develop a new plan for growth, he said.
"Our view is that Jean Coutu Group has the brand, the assets and the expertise that would enable the company to implement a new and broader vision for the company as a health-care provider," Mr. Howlett said. Options include getting into pharmacy benefit management, eye and foot clinics and even retail management for the distribution of medical marijuana, he said.
Nicolas Van Praet