In the finale of a corporate era in Florida, CVS Corp. and the Canadian Jean Coutu Group early Monday agreed to pay a combined $4.52-billion in cash to acquire and split up Eckerd Corp.
After buying 1,269 Eckerd stores in the Sunbelt and Eckerd's $1.3-billion mail-order pharmacy, CVS will begin changing all of them to the CVS brand this summer.
The Eckerd name then will vanish from the Florida pharmacy arena for the first time since Jack Eckerd bought three run-down Tampa Bay area drugstores in 1952. They were the foundation of an empire that became the biggest drugstore operator in the South.
Jack Eckerd's wife, Ruth, said on Monday that the couple, which has not been involved in the company since 1986, accepted the move with mixed feelings.
"I feel like it's kind of the passing of an era," she said. "The Eckerd stores were so much a part of our lives. So much blood, sweat and tears from so many loyal people went into them, I'm really sad to have this era pass. It's part nostalgia and part of a deep regret to have this happen."
The divestiture by J.C Penney Co. will leapfrog CVS (which stands for Consumer Value Stores) past Walgreen Co. as the nation's largest drugstore chain with more than 5,400 stores. In retiree-rich Florida, one of the nation's most lucrative prescription drug markets, the deal sets the stage for a showdown between CVS and Walgreens, which after a building binge became the state's dominant drugstore chain a few years ago.
CVS plans to spend $350,000 enhancing each of 622 Florida Eckerd stores with new fixtures, dark beige carpeting, extended hours and beefed-up staffing that Eckerd had cut to enhance its profitability in recent months.
"This acquisition will make CVS the most convenient pharmacy in the United States," said Tom Ryan, chairman and chief executive of the Woonsocket, R.I., chain that now claims it has a store within two miles of 50 percent of the population in the 36 states where it operates.
But the Eckerd name will live on elsewhere. Coutu is acquiring 1,560 Eckerd stores in 13 eastern seaboard states from Georgia north to New York that it plans to keep under the Eckerd banner. Coutu also acquired the chain's Largo headquarters campus, where more than 1,800 people work. The headquarters will remain intact while Coutu figures out how to combine its U.S. drugstore operations, which will more than quintuple in size after the sale.
CVS is hiring 400 Largo employees who work in the Eckerd Health Systems mail-order pharmacy next door to headquarters. The rest will work for Coutu. CVS agreed not to recruit Eckerd headquarters workers until Coutu gives a green light.
The mood at Eckerd's headquarters campus in Largo was quiet and uncertain Monday as employees got their first official word of a sale that was negotiated in secret but widely publicized over the past six months. While many were relieved that some of the mystery clouding their future has lifted, employees recognize they face turmoil over the next year as new owners figure out how to combine the companies. Many employees have been circulating their resumes for months and reviewing severance policies.
Other managers see Coutu as a career opportunity with a fast-growing chain controlled by Jean Coutu, the 77-year-old family patriarch who is a pharmacist first and a retailer second.
"This moves us from the eighth-largest drugstore chain in North America to the fourth," said Francois Coutu, president and chief executive of the company chaired by his father in Montreal. The Coutu family controls 55 percent of the company's stock and 92 percent of its voting shares.
Coutu, which has operated its 322-store Brooks Pharmacy chain in New England since 1995, plans to keep its U.S. headquarters in Warwick, R.I. Francois' brother, Michel Coutu, who heads the chain's U.S. operations, plans to meet Eckerd employees for the first time today in Largo.
The deal is not expected to be completed until late June. CVS will not disconnect its 1,269 Eckerd stores from the headquarters' logistical support for up to six months. Coutu said a year may pass before it sorts out what functions stay in Largo even though the headquarters will be more than 250 miles from the nearest Eckerd store.
"We will operate the headquarters in Florida for a period of time," Michel Coutu said. "It is really too early to tell what will happen there because we have to learn what functions we can combine and where. Some functions may stay there forever. We just do not know yet."
Some analysts say Coutu's track record is one of cautiously learning how its acquisitions work before making any disruptive moves.
Coutu will require a full staff to keep up with the ongoing needs during a transition that would take up to a year.
"Going from 322 stores to 1,500 is a huge gulp," said Keith Howlett, an analyst with Desjardin Securities in Toronto. "They will need all the help they can keep at the headquarters for now. But I would not be surprised if all of Coutu's U.S. stores are Eckerds five years from now."
The sale, however, ends J.C. Penney Co.'s star-crossed seven-year ownership of the Largo drugstore chain, which was the nation's fourth largest. The Plano, Texas, retailer plans to use the $3.5-billion proceeds to pay down debt and bankroll stock repurchases while completing a turn-around of its department store chain that has been gaining traction.
"It has been a difficult and complicated transaction," said Allen Questrom, chairman and chief executive of J.C. Penney. "We think we are getting good value for our shareholders."
J.C. Penney settled for far less than the $6.8-billion it once hoped Eckerd would fetch. The company paid $4.4-billion and assumed $1.1-billion in debt to assemble Eckerd and acquire four other drugstore chains to combine with its 800-store Thrift Drug chain in 1996 and 1997.
J.C. Penney leaders once saw Eckerd as a way to diversify and take advantage of combined operations such as credit cards, catalog desks and moderately priced cosmetics. In the final analysis, however, there were no advantages. Both business units stumbled and needed a major overhaul. After a frenetic attempt to patch together the disparate operations of what had been six different drugstore chains into one, Eckerd never became a uniform chain, analysts say.
By the time Questrom took command of J.C. Penney in 2000, Eckerd was closing hundreds of stores and racking up big losses.
"Department stores and drugstores are totally different businesses," Questrom said Monday. "There were no synergies."
- Times staff writer Stephen Nohlgren contributed to this report. Mark Albright can be reached at firstname.lastname@example.org or 727 893-8252.