Penney to Concentrate on Catalog, Stores After Eckerd Sale

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JC Penney finally rid itself of its Eckerd drugstore operations yesterday with the announcement that the Jean Coutu Group Inc. and CVS Corp. agreed to purchase Eckerd for $4.53 billion in cash.

The sale will allow Penney to "focus entirely on our core department store and catalog/Internet business," chairman/CEO Allen Questrom said in a statement.

Equity research analyst David Ritt of ASB Capital Management, Washington, said Eckerd represented " a pretty significant drag" on the company's operations. Still, he doubted that the sale will result in more resources going into Penney's direct operations.

"I doubt that they would allocate more personnel to the Internet and catalogs since they've been trying to run it as a leaner organization," he said.

The Jean Coutu Group will acquire Eckerd drugstores and support facilities in 13 Northeast and Mid-Atlantic states along with the Eckerd home office in Florida for $2.38 billion. CVS will get Eckerd drugstores and support facilities in southern states, primarily Florida and Texas, and Eckerd's pharmacy benefits management and mail-order businesses, for $2.15 billion.

"I think they got a fair price," Ritt said. "It seems at the high end of Street estimates, which were $4 [billion] to $4.5 [billion]."

Penney said it expects to generate $3.5 billion in cash proceeds after closing adjustments, taxes, fees and other related expenses. The closings are expected to occur by the end of the fiscal second quarter.

"The market had been waiting for a while," Ritt said. "They originally said it would be done by the end of the year. Then management said the end of 'our' year, which is a January fiscal year end, and that dragged. I'm glad they got it done. The extra time paid off. The urgency wasn't there since the rest of the business has turned around."


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