CVS Corp. said yesterday that it agreed to buy more than 1,200 Eckerd Corp. drugstores in a bid to unseat Walgreen Co. as the nation's biggest pharmacy.
CVS, based in Woonsocket, R.I., and currently the number two drugstore chain, will become the nation's largest by number of stores when its $2.15 billion cash deal to buy about 1,260 Eckerd stores and its mail-order and pharmacy-benefits business from J.C. Penney Co. becomes final in June.
The new CVS will have more than 5,000 stores and about $33 billion in annual sales, up from $26 billion in 2003.
The purchase also would allow CVS to follow the migration of the elderly to the Sun Belt. Nearly 90 percent of the Eckerd stores are in Florida and Texas, states loaded with elderly consumers who need their cholesterol and blood-pressure medications while playing golf and soaking up the sun.
"These stores are in high-growth markets," said Thomas M. Ryan, CVS chairman and chief executive, in a conference call. "We will be the most convenient pharmacy retailer with more stores that serve more prescriptions than any pharmacy in America."
Investors cheered the move, pushing shares of CVS up 7.4% to close at $37.35 on the New York Stock Exchange.
Walgreen, which is well-established in Southern states, will still have the highest revenues of any drugstore chain. It had $35.1 billion in sales in the 12 months that ended Feb. 29.
The Deerfield, Ill., chain, which has 4,336 stores, said it is building 450 new ones a year. It plans to expand to 7,000 stores by 2010.
No change in strategy
"We've competed against CVS in a lot of markets around the country very effectively, and we will continue to do so," said Walgreen spokesman Michael Polzin. "This isn't going to change our expansion strategy."
Walgreens has grown by building stores. CVS has grown primarily through acquisitions, including a merger with Revco in 1997 that added 2,200 stores.
The Eckerd deal arose because J.C. Penney, which bought Eckerd in 1997, wanted to sell after a weak performance. In addition to the sale to CVS, Penney is selling its remaining 1,539 Eckerd stores for $2.37 billion to a Montreal company, Jean Coutu Corp., which owns the Brooks Pharmacy chain. Coutu plans to leave the Eckerd nameplate on its stores, the company said.
The CVS deal brings 622 stores in Florida and 437 in Texas. The rest of the stores are in Arizona, Louisiana, Oklahoma, Mississippi, Missouri, Kansas and Alabama. CVS had said previously that it planned to build more stores in Las Vegas and Phoenix. Eckerd also will give CVS distribution centers in Dallas, Houston, and Orlando.
The Eckerd acquisition will also double the size of CVS' mail-order and pharmacy benefit manager operations to $2 billion. That is a tiny fraction of sales for the nation's big three mail-order houses. Medco Health Solutions Inc., for instance, had $34 billion in sales last year.
Ryan said the Eckerd mail-order facilities are working at 50 percent capacity and that CVS will be ready to offer corporations pharmacy benefit management services.