J.C. Penney Co., which has tried for
a year to sell its Eckerd Corp. drugstore chain, has drawn bids
from two groups: Kohlberg Kravis Roberts & Co. with Woonsocket-based CVS Corp.,
and Blackstone Group LP with Canadian drug chain Jean Coutu Group
Inc., people familiar with the matter said.
Buyout firm KKR controls Shoppers Drug Mart Corp., Canada’s
biggest drug chain, and CVS is the second-largest U.S. drugstore
operator. Blackstone runs the biggest buyout fund and Jean Coutu
is Canada’s No. 2 drug chain. Rite Aid Corp., Walgreen Co. and
drug chain Albertson’s Inc. also may bid, said the people, who
asked not to be named. The bids were due Friday, they said.
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J.C. Penny paid $3.2 billion for Eckerd in 1996. The drug
store chain may fetch as much as $6 billion, J.C. Penney Chief
Executive Allen Questrom said in March. He is looking to unload a
chain that contributed to a 35 percent drop in profit in the
third quarter after Eckerd cut prices in an attempt to lure
customers from CVS and Walgreen.
“Six billion might be an optimistic number,” said Jeffrey
Stinson, an analyst with FTN Financial Securities, who rates J.C.
Penney “sell” and doesn’t own any shares. He estimates the
chain may sell for $4 billion. The most profitable Eckerd stores
are in Florida and Texas, he said. “The rest of the chain, if
you look at the mid-Atlantic and Northeast, is not worth as
much.”
Eckerd accounted for about one-third of profit and half of
sales last year at Plano, Texas-based J.C. Penney. Profit from
the Eckerd unit is expected to drop as much as 30 percent in the
fourth quarter and same-store sales will decline, Chief Financial
Officer Robert Cavanaugh said earlier this month.
“They have had problems with the Eckerd chain,” said Brad
Brooks, who helps manage about $4 billion at Value Line Asset
Management in New York, including J.C. Penney shares. “At one
point, things were turning around nicely but that has fallen off.
They’re looking to get out from underneath it. Their retailing
unit has done very nicely.” J.C. Penney said last month it hired
Credit Suisse First Boston to find a buyer for Eckerd.
J.C. Penney spokeswoman Christi Byrd Smith, CVS spokesman
Todd Andrews, CSFB spokesman Pen Pendleton, Rite Aid spokeswoman
Karen Rugen, KKR spokeswoman Ruth Pachman, and Suzanne Beckmann,
an outside spokeswoman for Albertson’s, declined to comment.
Walgreen’s spokeswoman Carol Hively said, “We don’t comment
on rumors.” Blackstone spokesman John Ford didn’t return calls.
KKR manages more than $24 billion in assets, the most among
buyout firms. Blackstone last year raised the biggest-ever
individual buyout fund, at $6.45 billion.
KKR’s $272 million investment in Shoppers Drug Mart, made in
February 2001, is now worth at least four times that amount,
according to the buyout firm’s most recent annual report to
investors.
Bloomberg News
