CVS made its announcement shortly before the opening bell on Wall Street, saying it will exchange each Revco share for 0.937 shares of CVS stock or about $40.64. In New York Stock Exchange trading Thursday, Revco (RXR) closed up 87.5 cents at $38, while CVS (CVS) lost 25 cents to $44.

If approved by shareholders and anti-trust regulators, the companies said in a joint statement that their combination will create a national drugstore powerhouse. Combined revenues would top $13 billion and operations would include more than 4,000 stores stretching across the eastern United States.

"This is a major step in our ongoing plan to position CVS as one of the nation's preeminent growth companies," said Stanley P. Goldstein, CVS' chairman and chief executive officer. "To meet our long-term growth and profit objectives and to continue to be recognized as one of the best retail growth companies, we felt we should explore opportunities to accelerate our growth and enhance our strengths."

Under terms of the agreement, CVS management will remain intact. Two current Revco board members will take seats on the CVS board and Goldstein will continue as chairman and chief executive. The companies did not say what will happen to Revco's management.

CVS, based in Woonsocket, R.I., plans to close Revco's headquarters operation in Twinsburg, Ohio. The companies said that other than phasing out Revco's headquarters, where some 1,000 people are employed, they did not see any need for layoffs.

"CVS and Revco are highly compatible" said D. Dwayne Hoven, president and chief executive officer of Revco. "We operate in contiguous markets, with little geographic overlap."

Revco currently operates 2,600 stores and expects annual sales in 1997 to exceed $6 billion.

CVS, which said it plans to open or relocate 300 stores per year if the merger is approved, operates more than 1,400 stores and reported sales of $5.5 billion in 1996. The company recently failed in its bid to acquire Eckerd Corp. when Eckerd agreed to merge with J.C. Penney Co.