NEW YORK (CNNfn) - JCPenney, one of the leading U.S. department store and catalog retailers, announced an agreement to buy the Genovese drugstore chain in a $492 million deal that marks its latest incursion into the booming drugstore business.
The buyout is expected to result in the elimination of 200 jobs, mostly at the Melville, NY-based headquarters of Genovese, a JCPenny spokesman said Tuesday. Last January, Genovese pared its workforce to about 4,600 from 5,300.
JCPenney plans to fold Genovese's 141 stores into its recently-acquired Eckerd drugstore operations once the merger is complete sometime at the end of the first quarter of 1999.
JCPenny, whose roughly 1,200 department stores sell apparel, accessories and home furnishings, acquired Eckerd in 1997 as part of a major thrust to expand the company's presence in the booming drugstore business.
After the acquisition, Eckerd will oversee about 2,900 stores in 20 states across the Northeast, Midwest and the Sunbelt. The combined entity is expected to generate sales in fiscal 1999 of more than $12 billion.
Analysts viewed the deal as emblematic of the type of consolidation that has swept the drugstore and supermarket industry in recent years as companies have sought to compete more effectively against suddenly supersized rivals.
In JCPenney's case, company executives likely calculated that the drugstore sector offered an avenue of expansion not readily available in the cutthroat retail sector, according to Karen Sack, an analyst with the S&P Equity Group.
"This is a way for the company
to continue to grow over time and I think it is a healthy strategy over time," Sack said.
Enhancing the Northeast presence
The Genovese operations will add vital New York City and Nassau/Suffolk county markets to JCPenney's Eckerd business, enhancing its Northeast presence overall.
Under the deal, already approved by the boards of both companies, the Plano, Texas-based JCPenny will swap stock worth $432 million and assume about $60 million in debt.
The Genovese chain's 141 stores are scattered across New York, New Jersey and Connecticut. Members of the Genovese family, who own 60 percent of the company's voting power, have agreed to approve the transaction, JCPenny and Genovese said in a joint statement.
Genovese shareholders will receive JCPenney stock valued at $30 per share for each common share of Genovese stock. The exchange ratio will be determined based on the average trading value of JCPenney common stock over 10 random trading days prior to closing.
If JCPenney stock averages $54.66 or more during the period, the stock ratio will be fixed at 0.5489; if it averages $44.72 or below, the ratio will become fixed at 0.6709.
JCPenney is the No. 4 retailer in the United States, with 1,200 stores in the U.S., Mexico, Puerto Rico and Chile.
Shares of JCPenney (JCP) were down 2-5/16 at 52-5/8 Tuesday afternoon on the New York Stock exchange. Genovese (GDX.A) stock, traded on the American Stock Exchange, had slipped 13/16 to 29-3/16.