ROANOKE TIMES
Copyright (c) 1995, Roanoke Times
DATE: Friday, December 1, 1995 TAG: 9512010039
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
DATELINE: HARRISBURG, PA.
SOURCE: Associated Press
PURCHASE OF THE CHAIN by Rite Aid is at least in part a response to HMO pressures on the industry.
The nation's largest drugstore chain, Rite Aid Corp., will nearly double in size with the purchase of No.2 Revco D.S. Inc., in a $1.8 billion deal confirmed Thursday.
The cash and stock purchase combines companies with total annual revenues of more than $11 billion and 4,800 stores in 22 states in the East and Midwest. About 1,100 jobs will be lost as Revco's Ohio headquarters is closed. The company also plans to shutter about 300 stores.
Plans for Western Virginia stores are not yet determined, Rite Aid spokeswoman Susan Lechtner said Thursday. Revco is the dominant drugstore chain in most of the Roanoke and New River valleys; Rite Aid operates two stores in the region, in Blacksburg and Radford.
"There will be no decisions on store closings until after the merger is completed" late next spring, Lechtner said.
The purchase illustrates the ongoing consolidation of the drugstore business as changes in the medical industry heighten competition. Pharmacies are under severe pressure from health maintenance organizations, which obtain much deeper discounts from drug manufacturers in exchange for a pipeline to HMO members.
Drugstores also face pressure from recent efforts by drug makers to get into the distribution business through mail order pharmacies or prepaid prescription benefit programs.
Early next week, Rite Aid is scheduled to begin a cash offer for 50.1 percent of Revco's shares at $27.50 a share. A Chicago investment fund run by turnaround specialists Sam Zell and David Schulte that acquired Revco in 1992 and still owns 19.7 percent of the company has agreed to sell its shares to Rite Aid.
Revco shares not acquired through the offer will be converted into Rite Aid stock and under certain circumstances into stock and cash, the companies said.
Shares of both companies shot higher in trading after the announcements. Revco gained $2 to $27.50 a share on the New York Stock Exchange; Rite Aid rose $2.621/2 to $31.25.
Analysts generally liked the deal.
``They were going to be butting heads in certain regions more and more. To merge at this point makes perfect sense,'' said Gary M. Giblen of Smith Barney in New York.
Both Rite Aid and Revco have been acquiring other drugstore businesses lately in an effort to stay competitive.
Earlier this year, Rite Aid, based in the Harrisburg suburb of Camp Hill, paid $132 million for Perry Drug Stores Inc. of Pontiac, Mich. Most of the 240 headquarters workers eventually lost their jobs.
More recently, Rite Aid bought many of the drug stores operating in the New York metropolitan area from Pathmark, a supermarket chain. Rite Aid now has more than 2,700 stores in 21 states from Maine to Florida, and the District of Columbia.
Last year, Revco bought the 1,150-store Hook-SuperX chain for $632 million. It later sold 271 of those stores and closed 42; it now has more than 2,100 stores in 14 states.
The 300 store closings likely will be in areas of high duplication, said Rite Aid chief executive Martin Grass.
Rite Aid expects to cut annual costs by $156 million by closing the Revco headquarters in Twinsburg, Ohio, outside Cleveland, and streamlining distribution. No Revco executives are expected to stay on, said Grass.
The purchase has been approved by the boards of both companies but faces a federal antitrust review and requires a successful direct offer to shareholders for their stock.
LENGTH: Medium: 74 lines ILLUSTRATION: GRAPHIC: Map. color.by CNB