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ShopKo, Phar-Mor merge
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September 9, 1996: 8:45 p.m. ET
Two companies follow prescription for survivability in industry
From Correspondent Sean Callebs
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NEW YORK (CNNfn) - Drug retailers ShopKo Stores and Phar-Mor think they have found the prescription for gaining power in the industry -- merging.
The two companies announced Monday they will combine their resources in a deal valued at about $1 billion.
The transaction will produce a new company called Cabot Noble Inc., which will have annual sales of more than $3 billion from 232 stores in 29 states.
The companies sell the same type of items, mostly health and beauty aids and pharmaceuticals, and they said their merger will save them about $15 million to $20 million annually.
With competition in the industry increasing, analysts say the two had little choice but to join forces now.
"I suppose if you put them together, maybe you increase the number of possible outcomes for the combined company. It will be bigger and maybe it has greater survivability in that form," said Gary Vineberg, a drug retailing analyst for Merrill Lynch.
Phar-Mor was forced into bankruptcy court protection in 1992 in the wake of a $350 million fraud and embezzlement scandal. The company emerged from bankruptcy in 1995 after cutting 16,000 jobs and closing 200 stores.
Robert Haft, chairman and CEO of Phar-Mor, said the company is over its financial crisis and should experience strong growth from the merger.
"Certainly, the bankruptcy troubles are behind us. One of the strengths is we will have about $500 million in pharmacy sales alone in the combined companies. Secondly, we'll have another $500 million in revenues in general drug store items," Haft said.
Under the deal, Phar-Mor stockholders will receive one share in Cabot Noble for each share they own now. ShopKo stockholders, meanwhile, will own a majority stake in the new company, with each of their shares getting 2.4 shares of Cabot Noble.
The transaction comes just one month after Thrift Drug Inc., a unit of J.C. Penney Co. Inc., said it was buying drugstore chain Fay's Inc. for $285 million.
In another potential big deal, Revco launched a buyout bid for Alabama-based Big B.
Analysts say the only way for Ohio-based Revco to survive the threat of drug pricing pressures and costly computer upgrades that are essential in today's world of managed health care is to seek a merger.
The push for Big B comes five months after the Federal Trade Commission shot down plans for Revco to merge with rival Rite Aid.
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