THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, April 25, 1996 TAG: 9604250386
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY LISA CORNWELL, ASSOCIATED PRESS
LENGTH: Long : 104 lines
Rite Aid Corp. abandoned plans Wednesday to merge with Revco D.S. Inc. after the federal government complained the deal could create a drug store monopoly in the East and Midwest.
The Federal Trade Commission and several states had threatened to sue to block the $1.8 billion deal between the nation's two largest drug store chains. The FTC had said it would sue by Friday; the deadline for the deal was Monday.
Martin Grass, Rite Aid's chairman and chief executive officer, said the company determined that going ahead with the merger proposal was not feasible. He said a lawsuit could have gone on for months.
``We talked with Revco, and after five months, Revco decided they would rather not extend the contract,'' he said.
Grass accused the FTC of not reviewing the merger impartially and changing the rules midway through talks. He said that Rite Aid believed from talks with the FTC that an offer to sell 340 stores would satisfy a requirement that any merged company not control more than 35 percent of the chain pharmacies in any area.
George Cary, deputy director of the FTC's Bureau of Competition, said the deal was studied completely, and the decision to sue was approved 5-0.
``I think that those accusations (by Grass) reflect the fact that they wanted to do this deal, and we came to the conclusion that it was anti-competitive and not consistent with antitrust laws,'' Cary said.
Industry statistics showed that the merged company would control more than 40 percent of the market in several cities and regions.
D. Dwayne Hoven, Revco president and chief executive officer, offered a softly worded statement, saying he respected the FTC's ruling, and Revco would continue to operate independently.
``Our performance has been among the strongest in the industry and we are confident we will continue to be a strong competitor,'' he said.
Ohio Attorney General Betty Montgomery said Rite Aid's withdrawal was a victory for consumers.
``We were obviously standing on pretty firm ground or they wouldn't have backed down,'' Montgomery said.
The FTC had said Tuesday it would proceed with a lawsuit in U.S. District Court in Cleveland, apparently rejecting Rite Aid's proposal to sell 340 stores in hopes of avoiding an antitrust fight.
A merger between the two drugstore chains, the FTC said, would give them unfair market domination and higher prescription prices in at least nine states, Virginia and North Carolina among them.
In South Hampton Roads, there are nearly 20 Rite Aid outlets and about 50 Revco stores. Many of the stores are located in the same communities, with several located within a few blocks of each other.
Other states that could have been hard hit by a merger were South Carolina, Ohio, Indiana, Pennsylvania, Maryland, West Virginia and New York. Ohio and other states were planning lawsuits.
Rite Aid CEO Grass said it was ``highly unlikely'' that Rite Aid would ever seek a merger with Revco, but would not rule out future acquisitions of other pharmacies.
``We'll look at acquisitions, and if they make sense, we'll pursue them. And if there is a possibility to prove our point in court without the time problem, that we would vigorously pursue it.''
Rite Aid, based in Camp Hill, Pa., had announced plans for the Revco merger in November. Since then, company executives and FTC regulators had tried without success to work out a compromise to protect consumers.
The merged drug chain would have had 4,800 stores in 22 Midwest and East Coast states, more than twice the size of its closest competitor. But the company already had planned to close 300 overlapping stores, so the offer to sell an additional 340 amounted to a cut of about 8 percent of the remaining stores.
Rite Aid also had planned to close Revco's headquarters, which employs about 1,100 people.
The deal asked Revco shareholders to trade in their shares to Rite Aid for $27.50 cash per share, but uncertainty over the antitrust issues prevented most from accepting the offer. Revco shares ended down 1 7/8 at 24 1/8 Wednesday on the New York Stock Exchange. Rite Aid shares fell 1 3/4 to 29 7/8 on the NYSE. MEMO: Rite Aid says:
When Rite Aid made an offer which totally responded to all of the
(FTC) staff's demands, the bar was raised in such a way as to make it
impossible for us to clear it.''
Martin Grass
Rite Aid chairman and chief executive officer
The FTC says:
I think that those accusations (by Grass) reflect the fact that they
wanted to do this deal, and we came to the conclusion that it was
anti-competitive and not consistent with antitrust laws.''
George Cary
deputy director of the FTC's Bureau of Competition
Revco says:
Our performance has been among the strongest in the industry and we
are confident we will continue to be a strong competitor.''
D. Dwayne Hoven
Revco president and chief executive officer
ILLUSTRATION: Color photo by Associated Press
Shoppers browse Wednesday in a Rite Aid store in Philadelphia...
by CNB