Originally created 08/25/06

Once-ailing Rite Aid buys Eckerd chain



HARRISBURG, Pa. - Rite Aid Corp., the nation's third largest drugstore chain, said Thursday it will purchase 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 the Augusta-Aiken area and major cities such as Atlanta, Philadelphia, New York and Baltimore.

But it will still trail Walgreens 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.

"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.

In the first year, Rite Aid plans to spend $500 million on the stores it is buying to remodel, change merchandise and convert computer systems and signs to Rite Aid's, and add another $450 million in the next four years, Ms. Sammons said.

THE IMPACT

Rite Aid's acquisition of the Eckerd chain will make it the largest drugstore chain operator on the East Coast and give it a larger presence in the Augusta-Aiken area, where current owner Jean Coutu Group Inc. operates eight Eckerd locations.