EQB Inc.

, the parent company of Equitable Bank, is buying PC Financial and related insurance companies from

Loblaw Cos. Ltd.

in an $800-million deal, with the grocery store chain taking a minority stake in the financial services firm.

The companies have also agreed to a long-term strategic relationship in which EQB will become the exclusive financial partner of the retailer’s PC Optimum loyalty program.

The deal comes just a day after

Stephen Smith’s

Fairstone Bank of Canada announced it is buying Montreal-based Laurentian Bank of Canada for $1.9 billion — with certain operations to be spun off to National Bank of Canada. That transaction once completed would leave EQB and London, Ont.-based VersaBank as the only smaller publicly traded chartered banks in the market.

Bringing together PC Financial and EQB will create significant scale and reduce costs in the digital banking segment, where both pioneered no-fee, interest-bearing accounts, the companies said in a statement late Wednesday.

PC Financial customers will get access to EQ Bank’s digital platform and broader suite of savings and registered accounts, while EQ Bank customers will benefit from PC Financial’s credit cards as well as retail banking access at some 2,500 Loblaw stores, more than 180 in-store banking pavilions and an ATM network across Canada.

“By combining EQ Bank’s exceptional digital platform and product shelf with PC Financial’s spending solutions, distribution and expertise in loyalty, we’re creating a better banking ecosystem for all Canadians that prioritizes innovation and value,” Chadwick Westlake, EQB’s chief executive, said in the statement.

“Fuelled by our combined digital strengths and new ways to connect with customers, this transaction offers a unique opportunity for Canada’s challenger bank (EQB) to redefine what Canadians should expect from their banks.”

Westlake said EQB initially approached Loblaw about bringing the two businesses together more than a year ago and that the retailer came back to start talks last November. He said the combination makes sense from a business perspective and is in line with the federal government’s push in last month’s budget for increased competition with Canada’s largest banks.

“This is so important for competition, because this actually creates a scaled, customer-focused, high-value enterprise, and it is difficult to be a true competitor if you have an incomplete product shelf,” he

said in an interview on Thursday, adding that roughly $30 million in cost savings is expected to come from technology simplification and reworking contracts rather than job cuts.

“This scale is going to be transformative,” he said. “There will be no one like us, and I think the government is going to be very supportive of that.”

Gabriel Dechaine, an analyst at National Bank of Canada, said the PC Financial acquisition is positive for EQB for several reasons, including pairing the bank up with an “industry leader that sounds very committed to this partnership” and expanding its brand and distribution capabilities, but he’s skeptical of the cross-sell potential.

“We do not see EQB’s alternative mortgage customer base as a ‘target-rich environment’ for PC Financial credit card products,” he said in a note on Thursday. “There should be, however, a good opportunity for EQ Bank to expand its deposit base in the Loblaw in-store kiosk network.”

EQB’s purchase of PC Financial comes less than six months after the sudden death of its chief executive of nearly two decades, Andrew Moor. He was replaced by Westlake, a veteran of Bank of Nova Scotia who had joined EQB as chief financial officer in 2020 and returned as CEO in August after a brief stint as CFO at OpenText Corp.

As part of the bank combination, EQB picks up PC Financial’s Mastercard portfolio, one of the largest credit card portfolios in Canada, with more than two million active accounts. The acquisition will expand EQB’s customer base to more than three million Canadians and add $5.8 billion in assets, including more than $800 million in direct retail deposits.

The purchase price represents 1.15 times PC Financial’s book value,

excluding capital in excess of the regulatory minimum of 13 per cent. Loblaw will release and receive approximately $500 million of excess capital and other value from PC Bank, which the retailer said pegs the value to them at $1.3 billion.

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In addition, the retailer will receive 7.2 million shares of EQB as part of the purchase price, representing about 16 per cent of the issued and outstanding shares of the financial services company.

Under the terms of the agreement, Loblaw will own a minimum of 17 per cent of EQB’s issued and outstanding common shares upon the deal closing, which is subject to regulatory approval and expected to happen next year.

The target threshold should be met as a result of a share buyback before closing, Westlake said, adding that Loblaw will get two board seats and has the option to increase its share ownership stake in EQB to 25 per cent through purchases in the open market.

“PC Financial’s products will be better positioned for long-term growth under EQB’s ownership,” Richard Dufresne, chief financial officer of Loblaw, said in the statement. “Bringing together EQB’s digital platform with PC Optimum’s reach and personalization will bring more value and more rewards to Canadians.”

• Email: bshecter@postmedia.com