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Rite Aid to buy rival Revco $1.8 billion deal to solidify drug chain as nation's largest


Rite Aid Corp. is expected to announce today that it is acquiring Revco D.S. Inc. in a cash and stock deal valued at $1.8 billion.

The acquisition, which already has been approved by the boards of both companies, would cement Rite Aid's position as the largest drugstore chain in the country, creating a company with $11 billion in revenues and more than 4,500 stores, including scores in the Baltimore-Washington area.

Rite Aid expects to eliminate $156 million in costs by eliminating 1,100 jobs at Revco's headquarters in Cleveland, which will close, and streamlining distribution expenses, cutting redundant advertising and getting better prices from its suppliers as the newly expanded company buys more products from them.

Martin Grass, chairman and chief executive of Rite Aid, said the company would need fewer than 50 people to replace the 1,100 Revco jobs being cut.

Rite Aid plans to take a pretax charge of $163 million to cover the costs of merging with Revco.

Rite Aid, based in Camp Hill, Pa., already is the nation's largest drugstore chain thanks to its acquisitions during the last year and a half. The company has more than 2,800 stores in 23 states, including dozens in the Baltimore area.

Revco, a Fortune 500 company, has 2,100 stores in 14 states in the East, Southeast and Mid-west, including 23 in the Baltimore area.

It was unclear last night what impact, if any, the acquisition might have on the stores and employees here.

Mr. Grass said the combined companies would be able to take advantage of Rite Aid's advanced computer system and extend Revco's mail-order drug business.

"The managed care industry is driving our business, and we want to be in a position to offer them the most convenient low-cost service they can find," Mr. Grass said last night. "The expanded capacity this merger will give us will make us the best-positioned retail drugstore chain in the country to meet the challenges that changes in the medical industry are bringing."

Rite Aid has been looking for a way to make its Eagle Managed Care subsidiary, a prescription benefits management company, competitive in an era when large drug companies have been buying up prescription services.

In recent years, Merck has acquired Medco, and Eli Lilly has bought PCS Health Systems Inc., creating huge drug distribution networks that threaten independent operators like Eagle.

As part of the biggest drugstore chain in the country, however, Eagle will be able to stand up to such giants, Mr. Grass contended.

"This starts to level the playing field and even give us an advantage," he said. "Would you rather buy drugs from prescription management companies allied with a major pharmaceutical manufacturer who has an interest in pushing that manufacturer's products, or with someone independent like Eagle?"

The acquisition promises to be a home run for the Zell/Chilmark Fund L.P., an investment fund managed by the Chicago financiers Sam Zell and David Schulte that bought Revco out of bankruptcy protection in 1992 and still owns 19.7 percent of its shares.

Zell/Chilmark, which has pledged to vote in favor of the merger, will receive about $363.8 million for its stake in Revco, a 45 percent return on its original investment in the company of $250 million. The acquisition of Revco will take place in two steps. Early next week, Rite Aid is scheduled to begin a tender offer for 50.1 percent of Revco's shares at $27.50 each in cash. Then Zell/Chilmark will tender its shares to Rite Aid.

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