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REVCO TO SELL 40% OF STORES, PARE BACK TO 10-STATE REGION

Executive Summary

REVCO TO SELL 40% OF STORES, PARE BACK TO 10-STATE REGION, in a major "downsizing" of the chain. The cuts pave the way for the chain's reorganization plan to be filed with the Akron federal bankruptcy court on Feb. 28. Revco disclosed the plan to sell 712 stores in 18 states on Jan. 26. The chain said the stores to be sold accounted for just more than one-third of corporate sales. Lazard Freres & Co. will be the investment banker for the divestitures. The 10 states in which Revco intends to concentrate its operations are contiguous Eastern states running from New York and Ohio southward to South Carolina and Georgia. Revco said the more than 1,100 stores in that region now produce about $1.7 bil. in annual sales. Revco Chairman Boake Sells referred to the upcoming bankruptcy filing, noting that "the cash generated" by the divestitures "should facilitate a plan of reorganization." Sells declared, however, that "downsizing is the right strategy for Revco regardless of Chapter 11." The divestitures could also deter some of the takeover interest in Revco by taking away some of the attractive geographical targets and could make the chain stronger for fighting unwanted offers by reducing debt. The chain received a letter in October from an investor group including one of the Texas Bass family offering $925 mil. for the whole business. Texas is the biggest area being jettisoned by Revco in the divestiture plan. The chain currently operates 196 stores in the state, making it the second largest state in terms of Revco units behind 268 stores in North Carolina. Ohio and South Carolina are not far behind Texas. The size of the Texas operation also points out one of the interesting nuances of the divestitures program: Revco may have a hard time finding buyers big enough to handle large blocks of its stores without triggering antitrust problems. Two chains, for example, have operations comparable in size to Revco in Texas: Eckerd (with approximately twice the number of units) and Walgreen (with roughly the same number). It may be hard for Revco to sell all of its units to either of those logical bidders. Revco says that it expects to sell most of its units "to drugstore operators."
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