THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Saturday, February 8, 1997 TAG: 9702080429
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: STAFF AND WIRE REPORTS
LENGTH: 58 lines
Drugstore heavyweight CVS said it plans to acquire rival chain Revco in a stock swap of about $2.8 billion, or $40.64 a share. CVS also will take on about $900 million of Revco's debt. The move, which the companies have discussed privately since October, would make CVS the nation's largest drugstore chain in terms of stores and the second-largest in revenue.
If the deal goes through, the biggest difference Hampton Roads consumers will see is a change in signs - former Revco stores would assume the CVS name.
Revco operates 56 stores in South Hampton Roads. It has about 2,600 stores in 17 Midwestern, Southeastern and Eastern states.
CVS has no South Hampton Roads stores, but the Woonsocket, R.I.-based CVS operates 1,400 stores in 14 states and Washington, D.C.
Rival drugstores can expect trouble as an even bigger CVS leverages favorable contracts from HMOs and drug makers, industry experts say.
The boards of CVS and Revco have given the deal the green light. The transaction is subject to the approval of shareholders of both companies and a mandatory waiting period under federal antitrust guidelines.
About 20 percent of Revco is owned by Samuel Zell and his Zell/Chilmark Fund LP. He helped bring Revco out of bankruptcy in 1992, which it entered after a failed leveraged buyout.
Industry analysts say the FTC should put up little opposition to the merger since the companies have few overlapping markets. Revco and CVS expect their deal to be completed by mid-year.
A proposed merger between Rite Aid Pharmacies and Revco was nixed last year by federal regulators because of anti-trust concerns. Like Revco, Rite Aid also has a large presence in Hampton Roads.
The new CVS-Revco chain would have about 4,000 stores in 24 states and would bring in $13 billion in annual revenue, second only to Walgreen's.
CVS Vice Chairman and Chief Operating Officer Thomas Ryan said the move made sense for several reasons: the stores have little geographic overlap, they operate in contiguous markets and the combined buying muscle of the stores would produce $100 million in annual cost savings.
CVS, formerly known as Melville Corp., changed its name last year and jettisoned ancillary divisions to emphasize its concentration on the drugstore chain business.
Its acquisition of Revco reflects an industry trend within the past year of large supermarket pharmacies gobbling up one another to increase their buying power with drug companies.
The largest severing of employees would come at Revco's Twinsburg, Ohio, headquarters, which employs 1,100.
By the end of the year, ``the overall majority'' of the Twinsburg workers would be fired, said Revco spokesman Tom Dingledy.
The rest of Revco's 39,000 workers would have the option to keep their jobs, Dingledy said.
CVS said that after the transaction is complete it will launch an initiative to open or relocate 300 stores a year. ILLUSTRATION: Color photo by Ian Martin/The Virginian-Pilot
Revco
KEYWORDS: REVCO CVS BUYOUT