J.C. Penney Co. (Plano, Texas) has agreed to sell its Eckerd drugstore chain for $4.53 billion to two buyers.
After complicated negotiations, the buyers, CVS Inc. (Woonsocket, R.I.) and the Jean Coutu Group (Montreal), said they would divide Eckerd’s 2800 stores.
CVS will pay $2.15 billion for 1260 stores, most of them in Texas and Florida, making it the largest drugstore retail organization in the country. Jean Coutu will pay $2.375 billion to acquire 1539 stores on the East Coast and the Eckerd home office in Clearwater, Fla.
With the Eckerd acquisition, CVS will grow to 5339 stores from 4179, an increase of nearly 30 percent, pushing it past rival Walgreen (Deerfield, Ill.), which has 4336 stores. Jean Coutu, the third-largest Canadian drugstore retailer which owns the Brooks chain of drugstores in New York and New England, will have 1872 stores, up from 333, making it the fourth-largest drugstore chain in North America.
The split was necessary, a CVS executive said, because CVS has many stores in the Northeast and it might have run afoul of the Federal Trade Commission if it had tried to buy every Eckerd store there, as well. “Adding anything by acquisition is going to be tough from an FTC. standpoint,’’ said CVS cfo David Rickard.
The sale will “allow both J. C. Penney and Eckerd to maximize their potential,’’ according to Penney’s chairman and ceo Allen Questrom. He said that Penney would be able to focus “entirely on our core department store and catalog/Internet business.’’ In its fourth-quarter earnings report, J. C. Penney listed Eckerd as a discontinued operation and valued the business at $4.3 billion.
Analysts have long said that Eckerd stores are poorly managed and have not kept up with competitors by increasing the array of food, beverages and other non-drug items they sell. Last year, the division’s profits fell nearly 47 percent, although the performance was better than predictions. Eckerd stores were “not executing Retail 101 very well,” said CVS’s Rickard, and that they lacked “the people, the processes and the systems to do that.’’ In adding stores, he said, CVS plans to continue to invest in technology that improves efficiency at all levels of its business.