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Executive Summary

THRIFTY ACQUIRING PAYLESS FROM KMART to create chain with expected 1994 sales of $4.7 bil. The deal, announced Dec. 2, is valued at over $1 bil., consisting of $592 mil. in cash; assumption or refinancing of approximately $170 mil. in debt; $100 mil. in subordinated debt securities; and common stock representing 47% of the equity of the parent company of Thrifty and Bi-Mart, TCH. The transaction is expected to be completed by the end of February. It is subject to receipt of financing and must clear the Hart-Scott-Rodino federal antitrust provisions. The TCH shareholders will hold 53% of the equity of the combined entity. Wilsonville, Ore.-based PayLess Drug Stores operates 572 stores in 12 western states. It was purchased by Kmart in 1985, making it the second largest drug store chain in the U.S. TCH Corp. is a privately held corporation controlled by an investment partnership managed by Leonard Green & Partners, an investment banking firm that specializes in management buyouts. Thrifty has 494 stores in California. TCH also owns Bi-Mart Corp., a 41-store membership discount drug and general merchandise chain headquartered in Eugene, Ore., and two sporting goods chains. Kmart anticipates that it will complete its valuation of the TCH equity by the end of the year. "Based upon preliminary estimates using conservative valuation assumptions, an after-tax charge of approximately $100 mil. could be incurred," Kmart said. Kmart Chairman and CEO Joseph Antonini commented that the Kmart Specialty Retail group will now "focus its energies on the high growth, specialty businesses of The Sports Authority, Borders, Waldenbooks, OfficeMax and Builders Square."

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