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BIG B AND MEDICINE SHOPPE CHAINS ADVANCE WITH BEGLEY IN BEARISH MARCH

Executive Summary

Big B's 11% increase in the stock price exemplified the strength of chain drug issues in a generally retreating March market. Stock in the Southeastern regional drug chain closed March 31 at 13-3/8, up 1-3/8 for the month. Three of the four Chain Component issues on the "F-D-C" Monthly Index of O-T-C stocks advanced in excess of 10% during March. Medicine Shoppe (up 2-3/4 to 26-1/4) was the leader, with a price gain of nearly 12%. A $ 28 a share, board-approved acquisition offer from Rite Aid for the Begley Kentucky-based chain helped set the standard for valuation of the regional chains. In the bidding between Rite Aid and SupeRx, Begley eventually earned an end-of-the-month stock valuation of $ 18.2 mil. Begley was carrying a total market of about $ 6.9 at the end of 1987 before the takeover struggle. With the acquisition of Begley, Big B will be the only pure play publicly traded, regional chain operating in the Southeast. Stock in the Birmingham, Alabama-based chain now carries the Value Line investment survey's highest rating for timeliness. Among the company's strengths identified in a recent Value Line stock evaluation are Big B's aggressive expansion policy, the size of its pharmacy operation and a strong balance sheet. Since 1981, Big B has more than doubled its number of stores, from 74 to 183, and pushed operations into neighboring Mississippi and Florida. The company has capitalized on expansion opportunities made possible by industry-wide consolidation, purchasing 13 Alabama units from Jack Eckerd, which went private in 1986. According to Value Line, pharmacy sales account for 36%, or about $ 90 mil., of Big B's total fiscal 1987 (year ended Jan. 31) volume, a percentage breakdown "considerably higher" than other drugstore chains. About a quarter of these sales, or $ 22 mil., were attributable to third-party drug plans. The "Street's" rekindled interest in drug distribution was apparent in March, as the Chain and Wholesaler Components were the top-gaining Index components. Their upward movement helped the Index Composite to a modest 3% gain for the month. In contrast, the market as a whole lost ground; the Dow retreated from the 2,000 level, dropping 4% to 1988.06, while the S&P 400 declined 3% to close at 300.39. Bright spots on the "F-D-C" Index included Cal Bio (up 1-3/8 to 8), Immunex (up 2-3/8 to 13-7/8), Vestar (up 3/4 to 7-3/4), Viratek (up 1-3/4 to 12-1/4), Centocor (up 3-1/4 to 29) and PCS (up 2-1/2 to 27-14). Chart omitted.
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