ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Saturday, February 8, 1997 TAG: 9702100040
SECTION: BUSINESS PAGE: A-5 EDITION: METRO
DATELINE: CLEVELAND
SOURCE: Associated Press
CVS Corp., a leading East Coast drugstore chain, is branching into the Midwest and South and to the top tier of pharmacies with the $2.8 billion takeover of Revco DS Inc., announced Friday.
CVS, still concentrated east of the Mississippi, would have the most outlets of any drugstore chain and would be second only to Walgreen Co. in terms of revenue.
The two companies agreed to the deal amid tougher competition from mail-order drug sellers and big supermarket pharmacies. By combining, they hope to gain more bargaining power by offering health insurers a longer list of potential patients.
Rite Aid Corp. last year dropped a $1.8billion deal with Revco after the Federal Trade Commission said Rite Aid would gain too much of the market and threatened to sue to block the deal. Because CVS and Revco overlap in only a few states - primarily Virginia, New York and Pennsylvania - the sale likely won't be met with the same intense scrutiny.
Revco has about 2,600 stores in 17 states in the Midwest, Southeast and East, putting it second to Rite Aid. It operates more than 30 stores in the Roanoke and New River valleys. CVS is sixth with about 1,400 stores in 15 states, mostly the Northeast and Mid-Atlantic regions. It has none in Western Virginia.
The combined companies would have 4,000 outlets and revenues this year of about $13billion.
After the purchase, expected by summer, CVS plans to open or move about 300 stores a year, divided evenly among both chains. Revco stores will be changed to the CVS name first in overlapping areas and later in other markets, said CVS Chief Operating Officer Thomas Ryan.
One analyst, Chris Street, who has his own advisory firm in Newport Beach, Calif., said the CVS-Revco deal appeared aimed more at expanding over a broader area than becoming dominant in a smaller region.
``I think Rite Aid was trying to buy Revco to defend its competitive position,'' he said. ``Rather than a defensive move, this seems to be more of an offensive move to establish the first national drug distribution platform.''
The talks may have been pushed along by the November announcement that J.C. Penney Co. Inc. would buy Eckerd Corp. for $2.59billion in cash and stock.
CVS plans to raise Revco's performance - especially in sales and productivity - to its own level in about a year. CVS is one of the most efficient drug chains, operating at high volumes and aided by new systems technology. Its margin of cash flow to sales is 7.4 percent, topping Revco's 6.4 percent.
Under a formula agreed to by the companies, Revco shareholders will exchange each of their shares for CVS stock, which was worth $40.64 at Thursday's closing. CVS also is assuming about $900million of Revco debt.
Revco's shares rose $2.621/2 a share to $40.621/2 on the New York Stock Exchange, while CVS rose $1.871/2 to $45.871/2.
Ryan said the deal should generate $100million in annual savings.
The combined company will be based in Woonsocket, R.I., where CVS has its headquarters over time, but few other work force reductions are expected, the companies said.
Staff writer Megan Schnabel and Bloomberg Business News contributed to this report.
LENGTH: Medium: 70 lines ILLUSTRATION: PHOTO: STEPHANIE KLEIN-DAVIS/Staff. This newly constructedby CNBRevco on U.S. 221 in Southwest Roanoke County is one of the stores
to be bought by CVS. The purchase will create the nation's largest
pharmacy chain. color.