Weekly interest and loan rates | Home values Northwest stock contest 2004 | Consumer affairs

CVS, Canada chain buy drugstores from J.C. Penney for $4.5 billion

By David Koenig
The Associated Press

E-mail this article Print this article Search archive

Penney announced yesterday that it had sold Eckerd to CVS and Canada's Jean Coutu Group in two deals valued at $4.53 billion.

CVS of Woonsocket, R.I., will get about 1,260 Eckerd stores and support facilities in Texas, Florida and several Southern states, as well as Eckerd's pharmacy-benefits management and mail-order businesses, for $2.15 billion. It plans to rename the stores.

Jean Coutu will get 1,539 Eckerd stores in 13 Northeast and mid-Atlantic states and the chain's Florida headquarters for $2.38 billion in cash. Those stores will continue under the Eckerd name. Jean Coutu will become North America's fourth-largest drugstore chain by number of stores.

The sales ended months of speculation about the fate of Eckerd ever since Penney disclosed that it was selling the financially troubled chain.

The deals announced yesterday will make CVS the biggest U.S. drugstore operator as measured by the number of stores, with more than 5,000, leapfrogging over industry leader Walgreen, which said it had 4,336 stores as of Feb. 29.

In terms of revenue, Walgreen could retain a slim lead. It had $35.1 billion in sales in the 12 months that ended Feb. 29, compared with $26.9 billion for CVS and $7 billion in annual sales for the Eckerd stores that CVS acquired.

Analysts questioned the quality of the Eckerd stores that CVS bought and said the new owner might face a bigger-than-expected chore in sprucing them up.

Shares of CVS jumped $2.57, or 7.4 percent, to close at $37.35, while Penney shares gained 7 cents to $34.90.

Allen Questrom, Penney chairman and chief executive, said selling Eckerd would allow Penney to reduce debt and focus entirely on its 1,020 department store and catalog and Internet business, which has seen improving sales and financial results the past three years.

Tom Ryan, CVS chairman, president and chief executive, said the purchase fits his company's long-term strategy of expanding in the high-growth, Sunbelt markets.
 
But he said the Eckerd stores were in worse shape than previous CVS acquisitions such as Revco, and he blamed poor store management.

The deal is subject to regulatory approval, but Penney expects it to close before the end of July.

Mark Miller, an analyst for William Blair & Co., said CVS "has experience with acquisitions, and that's a help, but this will be a more difficult acquisition than their earlier ones."

Miller said CVS may be able to quickly revive sales at the front of Eckerd stores but that winning back pharmacy customers — the most valuable asset and a strong point for Walgreen — will be harder.

A spokesman for Walgreen, Michael Polzin, said a beefed-up CVS wouldn't change his company's plans to add 450 stores this year and nearly 3,000 by 2010.

Copyright © 2004 The Seattle Times Company