Lenders have approved Rite Aid Corp.'s planned sale of its pharmacy benefits subsidiary to Texas-based Advance Paradigm Inc. for $1 billion, the troubled drugstore chain said yesterday.
Advance Paradigm will pay $675 million in cash, $200 million in senior subordinated notes and $125 million in new stock for Rite Aid's PCS Health Systems Inc. - a third less than Rite Aid paid for the company last year. The deal is expected to close by Sept. 30, after a waiting period set by antitrust law.
The lenders' approval was an expected step in the pending sale, company officials said yesterday.
"We're glad they agreed the transaction was of good value to Rite Aid," said Karen Rugen, a Rite Aid spokeswoman. "Now all that remains is the waiting period."
The $675 million in cash from the sale will go toward paying off $1.5 billion in loans Rite Aid used to buy the pharmacy benefits manager, which acts as an intermediary between pharmacy companies and health plans or employers.
The nation's No. 3 drugstore chain, struggling against heavy losses, high debt and sharply lower share prices, is selling its subsidiary as a way to reduce debt, strengthen its balance sheet and fully focus on its core drugstore business.
Camp Hill, Pa.-based Rite Aid announced the PCS sale July 12, a day after reporting losses of $238 million in the first quarter that ended May 27 and $1.1 billion for the fiscal year that ended Feb. 26.
The chain also restated earnings for fiscal 1998 and 1999, resulting in total losses in those years of $608 million. Shares of Rite Aid, which have lost nearly 80 percent of their value in the past year, fell 37.5 cents yesterday to close at $4.625.
Acquiring PCS will bump up Advance Paradigm's national ranking from the second-largest independent pharmacy benefits manager to the largest, with $3.2 billion in revenue and serving 75 million members of health plans.
Analysts view the deal as positive for Rite Aid, allowing it to reverse some of the rapid growth that piled up debt of $6.6 billion.