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REVCO OPENS HOSTILE BID FOR DRUGSTORE-CHAIN RIVAL BIG B.

Byline: Daily News Wire Services

Revco D.S. Inc., one of the country's biggest drugstore chains, began a $330 million hostile takeover bid Monday for Big B Inc., a Southern competitor, while two smaller retailers announced a friendly merger.

ShopKo Stores Inc., a Green Bay, Wis.-based discount merchandiser, and Phar-Mor Inc., a drug chain based in Youngstown, Ohio, said they would combine under a new holding company, while keeping separate store names.

The moves underscore the increasingly competitive environment in drug retailing. Companies are trying to expand their markets and cut expenses as their profits are squeezed by health maintenance organizations, which demand deep discounts in prescription prices.

``This industry is undergoing consolidation. The rules of the game are changing due to the move to managed health care by all providers,'' said Jack Russo, securities analyst at A.G. Edwards Inc. in St. Louis.

Revco's bid is its first major strategic move since April, when Rite Aid Corp., the No. 1 drug retailer, abandoned its buyout of Revco amid opposition from government regulators who feared it would dominate too many markets.

Revco remains the No. 2 drug retailer with 2,184 stores in the Midwest, Southeast and East and $4.5 billion in annual revenues. The company doubled its size in 1994 by buying Hook SupeRx Inc. two years after emerging from a four-year bankruptcy reorganization.

Big B Inc., based near Birmingham, Ala., has 397 stores in five Southern states and about $750 million in annual revenues. Like many drug chains, it is suffering from declining profits partly due to the increasing dominance of cost-conscious managed care companies.

Revco, which already owns 5.4 percent of Big B, is offering $15 per share in cash for the rest, a nearly 19 percent premium over its closing price last week. Analysts said Big B management resisted a friendly buyout offer of $14 per share.

Anthony Bruno, Big B chairman and chief executive, said Monday the company's board is considering the offer and advised shareholders to wait.

Big B's shares rose $3.25 to $15.87-1/2 on the Nasdaq stock market, indicating investors believe Revco will boost its bid or another suitor will outbid it. Revco shares gained 12-1/2 cents to $25.75 on the New York Stock Exchange.

D. Dwayne Hoven, Revco's president and chief executive, said the combined company will be able to spread its costs over a larger base of stores and lower prices.

Hoven said in a telephone news conference he did not anticipate antitrust problems because the two companies have little territorial overlap. Hoven said all of the Big B stores would be renamed Revco.

In the other deal, ShopKo and Phar-Mor said they would merge under a holding company called Cabot Noble Inc., which would swap its newly issued stock for the shares of the existing companies. Combined, they would rank as the nation's eighth-largest pharmacy group.

The deal values ShopKo at about $552 million to $576 million, a premium of 6 percent to 11 percent over its closing price Friday. It values Phar-Mor at its current market value, just under $100 million.

ShopKo's 46 percent owner, the retailer and food distributor Supervalu Inc., will sell out its stake after the merger. ShopKo shareholders will dominate the new company, holding a 77 percent stake.

ShopKo has 130 stores in 15 states mostly in the Midwest, Northwest and Mountain states and $2 billion in annual revenues. It sells clothing, housewares, drugs and other merchandise and manages prescription drug benefits programs for health insurers and HMOs.

Phar-Mor has 102 stores in 18 states, mostly in Ohio, Pennsylvania and Virginia and about $1.2 billion in revenues. It is slowly emerging from a bankruptcy reorganization following an embezzlement scandal that forced the closing of about 200 stores and the end of 16,000 jobs.

John Ficarro, Phar-Mor vice president, said no decisions on job reductions have been made.

Robert Haft, Phar-Mor chairman and CEO, will lead Cabot Noble with those same titles.

Phar-Mor shares fell 75 cents to $7.37-1/2 on the Nasdaq while ShopKo lost 12-1/2 cents to $16.12-1/2.

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Title Annotation:BUSINESS
Publication:Daily News (Los Angeles, CA)
Geographic Code:1USA
Date:Sep 10, 1996
Words:697
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