J.C. Penney Sells Eckerd

The Eckerd drugstore chain has new owners?CVS Corp and Canada's Jean Coutu Group Inc. J.C. Penney Co, owner of Eckerd, sold the chain for $4.5 billion and is expected to generate $3.5 billion in cash from the deal after taxes and expenses. J.C. Penney expects to close the deal before the end of July.

Under the deal, Jean Coutu Group will get 1539 Eckerd stores in 13 Northeast and mid-Atlantic states and the chain's Florida headquarters for almost $2.4 billion in cash. The new stores will expand Coutu's holdings in the United States to 1872 outlets and in North America to 2196 stores. Coutu said the acquired drugstores will continue under the Eckerd name.

CVS of Woonsocket, RI, will acquire 1260 Eckerd stores and support facilities in Texas, Florida, and several southern states, as well as Eckerd's pharmacy benefits management and mail-order business, for $2.15 billion. CVS plans to rename the stores.

This deal will make CVS the biggest US drugstore operator with >5000 stores in 36 states and the District of Columbia, surpassing industry leader Walgreen Co. (At the end of February 2004, Walgreen had 4336 stores.) CVS reported that the deal would increase its annual revenue to $33 billion and give it a 13% share of the US prescription market.

J.C. Penney's price tag is 75% more than what it paid for Eckerd in 1996, despite the chain's underperformance since then relative to its biggest competitors. Even drug-chain underperformers can be hot commodities these days (as reported in The Wall Street Journal, April 1, 2004).