In another drugstore chain consolidation, CVS Corp. said yesterday it will acquire Revco DS Inc. for $3.7 billion in stock and assumed debt to form one of the nation's largest drugstore chains with $13 billion in annual revenues.
The combined company will be called CVS and will be based in Woonsocket, R.I., where CVS is currently based. The new
company will have more stores than any chain in the country -- approximately 4,000 in 24 states and Washington -- and be second only to Walgreen Co. of Illinois in annual revenues. CVS said it would push immediately into areas in the south where it does not have a large presence.
CVS stock rose $3.125 to close at $47.125 yesterday; Revco stock rose $3 to $41.
The merger is the continuation of a trend toward increasing consolidation in health-care delivery, said Alan Lyles, assistant professor at the Johns Hopkins University, School of Hygiene and Public Health.
Rite Aid Corp. bought Thrifty Payless for $2.41 million and J. C. Penney Co. has announced it will buy Eckerd Corp. The largest drugstore chains can be more competitive in gaining contracts with health maintenance organizations because they can offer wider distribution.
A combined company will have economies of scale. CVS and Revco said in a statement issued jointly that a combined entity would be expected to produce $100 million in annual cost savings.
CVS is the nation's fifth largest drugstore chain by store count and sales volume, operating 1,409 stores in 14 states, primarily in the Northeast and Mid-Atlantic regions.
Revco, based in Twinsburg, Ohio, has annual sales of approximately $6 billion and 2,600 stores in the Midwest, Southeast and East. Its stock price has doubled since Rite Aid Corp. attempted to purchase it in April and the deal fell apart. Rite Aid has 3,500 stores and $10 billion in revenues.
New stores planned
If approved by the Federal Trade Commission, the transaction would take place by mid-year, according to a statement issued yesterday by the two companies.
CVS will implement an aggressive store-opening program calling for approximately 300 new stores or relocations per year.
The merger did not appear to worry local, independent drugstore owners.
"I think it will have little effect on my business," said Michael G. Bronfein, president and chief executive officer of NeighborCare.
While the national drugstore chains sell everything from motor oil to toothpaste, NeighborCare, Bronfein said, has defined its market as specialized patients who need to establish a personal relationship with a pharmacist.
Under the agreement, Revco shareholders will exchange each of their shares for CVS stock that is worth $42.11 at yesterday's closing price. CVS also is assuming about $900 million of Revco debt.