LEON’S FURNITURE LTD. $11.30 - Toronto symbol LNF

LEON’S FURNITURE LTD. $11.30 (Toronto symbol LNF; TSINetwork Rating: Average) (416 -243-7880; www.leons.ca; Shares outstanding: 70.0 million; Market cap: $791.0 million; Dividend yield: 3.5%) is nearly doubling its market cap by acquiring rival furniture chain The Brick (Toronto symbol BRK) for $700 million.

The Brick operates 230 stores across Canada, while Leon’s has 76 outlets in every province except B.C. Leon’s and The Brick will continue to operate as separate chains.

Growth by acquisition can be risky, especially with a deal this big. But the Brick looks like a good fit with Leon’s.

The Brick posted a $163- million loss in 2009, but it has since returned to profitability and paid down its high debt load.

Both firms will face heightened competition next year when Target Corp.—which sells a range of home furnishings—opens up to 135 stores across Canada.

Combining the chains will let them focus on that competition and pool their marketing resources. The blended company’s larger size also helps it negotiate lower prices from suppliers.

Leon’s is still a buy.

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