Jean Coutu deal rumoured

Speculation is growing that Jean Coutu Group Inc. is preparing to link up with a partner in a joint bid for U.S. drugstore giant Eckerd Corp.

The Globe and Mail
October 3, 2003

Jean Coutu deal rumoured
Speculation has firm in a joint bid for U.S. drugstore giant Eckerd
Bertrand Marotte

MONTREAL — Speculation is growing that Jean Coutu Group Inc. is preparing to link up with a partner in a joint bid for U.S. drugstore giant Eckerd Corp.

Eckerd's parent, J.C. Penney Co. Inc., said earlier in the week that a decision regarding its underperforming pharmacy chain of 2,700 stores will be made by the end of the year.

Allen Questrom, chairman and chief executive officer of Plano, Tex.-based J.C. Penney, told securities analysts on Monday that he will decide by year's end whether to keep or sell Eckerd, the fourth-largest drugstore chain in the United States.

Talk that department-store owner J.C. Penney will spin off or sell Eckerd has been widespread on Wall Street.

Longueuil, Que.-based Jean Coutu has said it's on the lookout for acquisition targets in New England and neighbouring states.

It already has a significant presence in New England with 330 stores under the Brooks Pharmacy banner.

Raymond James Ltd. analyst Raymond Lai says in a research note that Jean Coutu would be keen on making an offer for about 250 Eckerd stores in such states as New York, Pennsylvania and New Jersey.

Jean Coutu's partner would be CVS Corp. of Woonsocket, R.I., the second-largest drugstore chain in the Unites States, Mr. Lai said.

"We believe Coutu will partner with CVS to purchase Eckerd — in part or whole — to redress CVS's antitrust issue with overlapping stores," he said.

CVS would take Eckerd stores concentrated in the U.S. Sunbelt, according to this scenario.

The purchase price would be reasonable, given limited competition from strategic or financial buyers, Mr. Lai said.

Jean Coutu has $725-million of debt capacity to fund a major acquisition, he added.

Richard Hastings, vice-president and chief retail analyst with New York credit rating specialist Bernard Sands, said it would make sense for J.C. Penney to shed Eckerd after buying it seven years ago but failing to keep expansion and refurbishment on pace with sharper rivals such as Walgreen Co.

"There has to be a solution to the J.C. Penney-Eckerd problem. There are no synergies between those two companies," he said.

A joint Jean Coutu-CVS bid "makes sense from a business combination perspective," he added.

Jean Coutu officials do not provide details of what acquisition targets they are eyeing, but head of U.S. operations Michel Coutu has stated in the past that he admires Eckerd.

Jean Coutu is one of Canada's top three drugstore chains, with more than 300 outlets, mostly in Quebec. Company founder and chairman Jean Coutu revealed last year that the company came close to buying and breaking up a U.S. chain in 2001 in concert with other allies.

Several years ago, Jean Coutu Group tried to swallow Toronto-based rival Shoppers Drug Mart Corp., the leading chain in Canada, but was outbid in a $2.55-billion deal led by U.S. buyout specialists Kohlberg Kravis Roberts.


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