CVS AGREES TO ACQUIRE REVCO IN $2.8 BILLION STOCK TRANSACTION
- Combined Company Will Rank First in U.S. Store Locations,
Second in Revenues with $13.0 Billion -
- Excellent Fit: Companies Operate in Contiguous Markets,
With Similar-Size Stores and Merchandising Strategies -
- Opportunities to Increase Growth and Profitability
by Further Enhancing Revco's Strong Performance -
WOONSOCKET, RI and TWINSBURG, OH, February 7, 1997 - CVS (NYSE: CVS),
a leading drugstore chain in the Northeast and Middle Atlantic
regions, and Revco (NYSE: RXR), with leading positions in the Midwest
and Southeast, today announced that they have signed a definitive
agreement providing for the combination of CVS and Revco in a stock
transaction valued at approximately $2.8 billion, plus the assumption
of approximately $900 million of Revco debt.
The combination of CVS and Revco, which was unanimously approved by
the Boards of Directors of both companies, brings together two of the
leading companies in the industry to create the nation's largest chain
drug store company based on store count, with approximately 4,000
locations in 24 states and the District of Columbia. The combination
will result in leading positions in the Northeast, Mid-Atlantic,
Southeast and Midwest regions; and the combined enterprise will rank
second in annual retail drug store revenues in 1997, with
approximately $13.0 billion.
Under terms of the agreement, CVS will combine with Revco in an
exchange of stock that is expected to qualify for treatment as a
pooling of interests transaction and be tax-free to Revco
shareholders. For each share of Revco stock they hold, Revco
shareholders will receive the sum of (i) 0.4692 shares of CVS common
stock and (ii) the number of shares of CVS stock determined by
dividing $20 by the CVS Average Closing Price (collectively, the
"Conversion Ratio"), provided that under no circumstances will the
Conversion Ratio exceed 1.0097 or be less than 0.8837. The CVS Average
Closing Price will be determined by randomly selecting ten trading
days out of the twenty trading days ending on the fifth trading day
preceding the closing date. For example, assuming an Average CVS
Closing Price of $44.00 (the price at which CVS closed yesterday on
the New York Stock Exchange), Revco shareholders would receive 0.9237
shares of CVS common stock (valued at $40.64 per share based upon such
closing price) for each share of Revco common stock they hold.
Stanley P. Goldstein, Chairman and Chief Executive Officer of CVS,
said: "This is a major step in our ongoing plan to position CVS as one
of the nation's preeminent growth companies. We already had the size
and scope, and the operational and financial strength, needed to
continue to do very well. But to meet our long-term growth and profit
objectives and to continue to be recognized as one of the best retail
growth companies, we felt we should explore opportunities to
accelerate our growth and enhance our strengths. This transaction
provides a compelling opportunity to meet those objectives, to move us
into two very attractive new markets - the Midwest and Southeast -
and, most important, to generate increased shareholder value."
Thomas M. Ryan, CVS' Vice Chairman and Chief Operating Officer, said:
"This transaction brings together two strong companies that each have
excellent track records. Importantly, it meets each of the three
criteria for strategic acquisitions we have stated in the past: First,
it is accretive; the combination is expected to produce $100 million
in annual cost savings. Second, it brings us into new markets,
including the high-growth Southeast. Third, it offers significant
upside potential, by combining the technological, marketing and sales
expertise of both companies to further enhance operating performance.
"CVS and Revco are highly compatible. Our stores are of similar size.
We operate in contiguous markets, with little geographic overlap. Both
companies have developed strong expertise in serving the managed care
marketplace, and we both place great emphasis on customer service,
quality, value, and corporate citizenship. Thus, the operational and
cultural integration should be relatively smooth," Mr. Ryan said.
D. Dwayne Hoven, President and Chief Executive Officer of Revco, said:
"In evaluating its strategic opportunities in a rapidly consolidating
industry, the Revco Board of Directors determined that this business
combination offers the best opportunity to achieve our primary
objective: building the value of Revco for all Revco shareholders. I
know of no other group of people anywhere who have accomplished what
the men and women of Revco have. In the face of adversity, they
brought a company from bankruptcy to a premier position in the
industry. The strength of our company is directly attributable to the
efforts of these men and women."
Following completion of the transaction, CVS will implement an
aggressive new-store opening program, calling for approximately 300
new stores or relocations per year. The combination offers significant
opportunities to build value by leveraging the operating strengths of
both companies. Moreover, the combined company will be well-positioned
to expand its managed care business by taking advantage of its
innovative prescription benefits management (PBM) services and
mail-order capabilities.
The transaction is subject to approval by the shareholders of both
companies, expiration of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act, and other customary
closing conditions. It is expected that the transaction will be
completed by mid-year 1997.
Two current Revco Board members will join the CVS Board, increasing
the Board of Directors to 15 members. The combined company will be
called CVS, will be led by CVS' current senior management team and
will be headquartered in Woonsocket, RI. Except for the phase-out of
Revco's Twinsburg, OH headquarters over time, few if any workforce
reductions are expected as a result of the combination.
CVS' financial advisors for the transaction were Donaldson, Lufkin &
Jenrette Securities Corp. (who provided a fairness opinion) and Credit
Suisse First Boston Corporation. Revco was advised and its Board given
a fairness opinion by Wasserstein Perella & Co. Salomon Brothers Inc.
also provided a fairness opinion to Revco.
CVS is currently the nation's fifth largest drug store chain by store
count and sales volume, operating 1,409 stores in 14 states and the
District of Columbia with annual sales of $5.5 billion in 1996. It is
a leading drug store chain in the Northeast and Middle Atlantic
regions, and is a leader in productivity, with $573 in sales per
retail square foot in 1996.
CVS is a stand-alone drug store company which in October 1996 changed
its symbol on the New York Stock Exchange to "CVS" from "MES." In
November, the company changed its name from Melville Corporation to
CVS, reflecting its concentration on the chain drug store business and
the completion of its restructuring program, which was initially
announced in 1994 and was approved by Melville's Board of Directors in
1995. With a strong record of growth over its more than thirty-year
history, CVS continues to achieve strong financial performance.
REVCO is currently one of the nation's largest retail drug store
chains, with expected annual sales of approximately $6.0 billion in
its current fiscal year, which ends May 31, 1997. The company operates
approximately 2,600 stores in 17 Midwestern, Southeastern and Eastern
states.
B-ROLL AVAILABLE: B-Roll footage for both companies will be fed from
9:00- 9:30 a.m. (EST) and 1:00-1:30 p.m. (EST) and can be accessed as
follows:
9:00-9:30 a.m. (EST) C-Band Galaxy 6; Transponder 17
1:00-1:30 p.m. (EST) C-Band Galaxy 4; Transponder 10