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SUPERx ACQUISITION OF BEGLEY WOULD DOUBLE TOTAL DRUGSTORES

Executive Summary

SUPERx ACQUISITION OF BEGLEY WOULD DOUBLE TOTAL DRUGSTORES of the Kroger spinoff to nearly 100 units and expand its operation into Kentucky. Phoenix, Ariz.-based SupeRx currently operates 51 stores, 27 in the Phoenix area, with the remainder located in Georgia and Alabama. In addition to its 43 drugstores, Begley operates seven institutional pharmacies, six home health centers and 127 dry cleaning outlets. On Jan. 20, SupeRx commenced a cash tender offer for all of Begley's common stock at $ 18.50 a share, a deal worth just over $ 12 mil. The proposal was the second for SupeRx in the same week. However, the Begley board is reportedly viewing the most recent SupeRx offer as inadequate. "On Jan. 18, SupeRx submitted a merger proposal to the Begley board to acquire all outstanding Begley shares for $ 18.50 per share," SupeRx stated in its Jan. 20 press release. "The Begley board has not as yet responded to SupeRx' proposal." According to a Securities & Exchange Commission 13-D filing, SuperRx has agreements to acquire 16.8%, or 111,835 shares, of Begley, including an agreement with Chairman Robert Begley's family to purchase all of their shares. SupeRx also disclosed a $ 15 mil. credit commitment from American Continental. The $ 18.50 per share represents a premium of nearly 50% above Begley's closing price of 12-1/2 at the end of 1987. The stock closed the week ended Jan. 29 at 17-1/2. The current SupeRx chain resulted from Kroger's "repositioning" of its 890-store Hook/SupeRx chain drug operation toward the end of 1986. Over 700 stores were taken private via a leveraged buyout by Kroger board member Philip Beekman and several executives. The remaining 180 stores were sold in separate deals, one of which included the sale of the Arizona, Georgia and Alabama stores to former Kroger drugstore exec Gerald Wolken, who now heads the private chain. For the third quarter ended Dec. 31, Begley reported flat sales of about $ 21 mil. and a precipitous 52% drop in net income, from $ 630,000 in the third quarter of fiscal 1987 to $ 300,000. Nine-month sales were up slightly, 3% to $ 58 mil., but net income plummeted 96%, from $ 650,000 to $ 30,000.
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