Rite Aid to buy out competitor

HARRISBURG, Pa. — Rite Aid Corp., one of the most visible drugstore names from New York to Atlanta, is poised to cement its already strong East Coast presence.

The nation's third-largest drugstore chain said Thursday that it will purchase about 1,800 Eckerd and Brooks stores, Rite Aid's first major acquisition since a turnaround team arrived to bring the company back from the brink of bankruptcy six years ago.

The $2.55 billion cash and stock deal with Canada's Jean Coutu Group Inc. is designed to help Rite Aid keep pace with its bigger rivals, Walgreen Co. and CVS Corp. Swallowing those stores will make Rite Aid the largest drugstore chain operator on the East Coast and expand its presence in major cities such as Atlanta, Philadelphia, New York and Baltimore.

"It accelerates so quickly our growth strategy," Rite Aid's president and Chief Executive Mary Sammons said in a telephone interview. "These are good stores in good locations. ... In terms of getting into the neighborhood, being where the customer is, you really want to have the scale that our leaders in the drugstore channel have."

Rite Aid will pay $1.45 billion in cash and 250 million shares valued at about $1.1 billion for the Eckerd and Brooks operations in the United States. The shares will make Jean Coutu the largest Rite Aid shareholder and give it the right to designate four of the 14 board members. In addition, Rite Aid will assume $850 million in long-term debt as part of the deal.

In the first year, Rite Aid plans to spend $500 million on the stores it is buying to remodel, remerchandise and convert their computer systems and signage to Rite Aid's, as well as another $450 million in the following four years, Sammons said.

"Every store will be touched in that first year, and some to a greater degree than others," she said.

Sammons' team took the reins of Rite Aid in December 1999 after the board forced out the previous management. They found the company to be $6 billion in debt, the seriousness of which was hidden for at least two years because of a $1.6 billion accounting falsification scheme that landed several former executives behind bars.

Neil Stern, a drugstore analyst and senior partner with Chicago-based retail consulting firm, McMillan Doolittle LLP, said Rite Aid needed to make the purchase if it expected to keep up with the rapidly expanding CVS and Walgreen.

He said the deal also builds on Rite Aid's strong markets in the Northeast.