Rite Aid will buy Eckerd chain

Friday, August 25, 2006 Rite Aid is buying again, six years after nearly filing for bankruptcy. HARRISBURG (AP) — Rite Aid Corp., the nation's third-largest drugstore chain, said Thursday it will buy the U.S. Eckerd and Brooks operations of Canada's Jean Coutu Group Inc. for about $2.55 billion in cash and stock. The deal, Rite Aid's first major acquisition since a turnaround team arrived to bring the company back from the brink of bankruptcy six years ago, will make it the largest drugstore chain operator on the East Coast and give it a larger presence in major cities such as Atlanta, Philadelphia, New York and Baltimore, Rite Aid said. But it will still trail Walgreen and CVS nationally. "With this larger scale, we'll be able to compete more effectively in a very competitive business," Rite Aid president and CEO Mary Sammons told analysts in a conference call. Details "And we'll be in a stronger position to take advantage of the growth expected in our industry, with more people taking more prescriptions, a wave of new generics coming to market, the new Medicare prescription plan for seniors, and customers becoming more health conscious." Rite Aid will pay $1.45 billion in cash and 250 million shares valued at about $1.1 billion. The shares will give Jean Coutu a 32 percent equity stake and 30.2 percent voting power in the expanded Rite Aid, making it the company's largest shareholder. In addition, Rite Aid will assume $850 million of long-term debt as part of the deal. In the first year, Rite Aid plans to spend $500 million on the stores it is buying to remodel, remerchandise and convert their computer systems and signage to Rite Aid's, and add another $450 million in the following four years, Sammons said. "Every store will be touched in that first year, and some to a greater degree than others," she said. Neil Stern, a drugstore analyst and senior partner with Chicago-based retail consulting firm McMillan Doolittle LLP, said Rite Aid needed to make the purchase if it expected to keep up with the rapidly expanding CVS and Walgreen. He also said the deal also builds on Rite Aid's strong markets in the Northeast. "I think they clearly have the organizational strength to do this, and I think they have the financial wherewithal, assuming they get the support from Wall Street," Stern said. Rite Aid shares fell 19 cents, or 4.1 percent, to $4.49 in afternoon morning trading on the New York Stock Exchange. Jean Coutu paid $2.38 billion for 1,539 Eckerd stores sold in 2004 by the retailer J.C. Penney Co.