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"CVS Corp. to Acquire 1,260 Eckerd Stores, Mail Order Pharmacy Business"
"WOONSOCKET, R.I. -- CVS Corp. has entered into a definitive agreement under which it will acquire from J.C. Penney Co. Inc., approximately 1,260 Eckerd drug stores, located mainly in the southern United States, as well as Eckerd Health Services, which includes Eckerd's $1 billion mail order and pharmacy benefits management businesses, and three Eckerd distribution centers.Following completion of the transaction, CVS will operate more than 5,000 locations in 36 states and the District of Columbia. CVS' PharmaCare subsidiary will nearly double in size to more than $2 billion in annual revenues and will serve approximately 30 million lives. In total, CVS will fill approximately 13% of the nation's retail prescriptions. The combined 2003 revenues of CVS Corporation and the operations it has agreed to acquire were approximately $33 billion.The cash transaction is valued at $2.15 billion.Concurrently, JCPenney, based in Plano, Texas, has signed a definitive agreement with The Jean Coutu Group PJC Inc. through which the group will acquire Eckerd drugstores and support facilities located in 13 Northeast and mid-Atlantic states, as well as the Eckerd home office in Florida, for $2.375 billion. CVS will acquire Eckerd drugstores and support facilities located in the remaining southern states, principally Florida and Texas, and Eckerd's pharmacy benefits management and mail order businesses, for $2.150 billion.After closing adjustments, taxes, fees and other expenses related to the transactions, JCPenney expects to generate approximately $3.5 billion in cash proceeds. Closing of the transactions, which are subject to normal and customary regulatory approvals, is anticipated to occur by the end of the fiscal second quarter."This acquisition is a unique opportunity and is consistent with our long-term strategy of expanding our store base in the high-growth sun-belt markets," says Tom Ryan, chairman, president and chief executive officer of CVS. "The demographics in these states are very favorable, as they are experiencing rapid population growth, particularly among seniors, resulting in pharmaceutical utilization rates among the highest in the nation."The addition of Eckerd Health Services to our PharmaCare subsidiary creates a national mail order, pharmacy benefits management and specialty pharmacy company with annual revenues in excess of $2 billion and approximately 30 million lives served," Ryan continues. "We believe we can drive further growth through the combination of its outstanding operations with those of PharmaCare. Moreover, with increased scale, PharmaCare will be in a better position to serve large corporate customers.Ryan says CVS will "pursue a wide range of initiatives designed to improve the stores' focus on inventory management, market-oriented pricing and building customer loyalty through our ExtraCare program. We are confident that our success in these areas will lead to enhanced sales growth, margin expansion and increased profitability at the acquired operations."CVS officials expect that its enhanced market position in the South will enable it to achieve annual cost synergies through economies of scale in advertising, distribution and purchasing, as well as other SG&A efficiencies. The company's enhanced presence in the South will also strengthen service to current customers who travel south from other markets by enabling them to utilize CVS for their pharmacy needs throughout the year. "The purchase price is very attractive on a purely cash economics basis and the transaction will provide significant long-term strategic benefits," says Dave Rickard, chief financial officer of CVS. "The purchase price represents a multiple of 0.30x net sales acquired. In addition, we expect the transaction to add approximately $150 million to our cash flow in 2005, even after a significant infusion of capital for stores and systems."We expect this acquisition to be 12 to 15 cents dilutive to 2004 earnings per share, after integration and non-recurring expenses associated with the transaction," he concludes. "We expect the transaction to be 15 to 20 cents accretive to 2005 earnings per share and to be 25 to 30 cents accretive to 2006 earnings per share.""