Magazine article Drug Topics

Big B Getting Even Bigger, with Treasury Drug Purchase

Magazine article Drug Topics

Big B Getting Even Bigger, with Treasury Drug Purchase

Article excerpt

Big B Inc. is putting the finish touches on its purchase of Treasury Drug units in Atlanta.

At press time, the Birmingham, Ala.-based chain was following up on its agreement to buy 45 Treasury stores from J. C. Penney Co.'s Thrift Drug subsidiary. Although Big B was not saying what it was paying for the acquisition, the company's prospectus for the $35 million worth of 6.5% convertible subordinated debentures--due in 2003--affixed a $16.5 million price tag.

The addition of these units will help Big B leapfrog past Drug Emporium as the market's second-ranked player behind Eckerd. Big B will operate 109 units in the Atlanta area after the stores are integrated.

At press time, a spokeswoman for Big B commented that the company "had taken control of and inventoried" 44 Treasury outlets. Meanwhile, Thrift Drug spokeswoman Margot Callahan confirmed that Big B had taken possession of "some" of the stores, but that the sell-off of Treasury private-label goods was continuing in those still under its control. Treasury was using local newspapers to inform consumers that house-brand goods were available at discount prices.

David Magee, market analyst for Robinson-Humphrey in Atlanta, said that there is a provision in the purchase agreement calling for Big B to buy certain assets of the 19 remaining Treasury stores in Georgia if Treasury cannot find a buyer.

The big questions surrounding the acquisition are, How quickly will Big B convert the stores in terms of remerchandising and hanging up appropriate logos? And, what will the impact be on Big B's bottom line?

Big B entered the Atlanta market when it purchased the 85-store Reed Drug from Peoples Drug Stores in February 1989 at a cost of $52.4 million. Indeed, Big B's financial performance suffered for a number of reporting periods following the acquisition, but Magee doesn't feel that will necessarily be the case this time. He cited the smaller size of the acquisition and Big B's expanded store roster overall (some 350 units when all of the Treasury stores join the fold). He said Big B will be in a far better position to amortize costs, as it realizes the increased benefits of economies of scale pertaining to advertising and distribution.

Magee further said that the expanded roster is the right prescription. …

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