Revco creditors mull Eckerd buyout proposal

Drug Store News, Oct 14, 1991 by James Frederick

CLEARWATER, Fla. -- Revco's creditors are looking hard at a new, sweetened buyout proposal for the company filed late last month by Jack Eckerd Corp. If approved by creditors and U.S. Bankruptcy Court, Eckerd's takeover proposal would pull Revco out of Chapter 11 and merge both companies into a publicly traded powerhouse with $5.4 billion in combined sales and drug store operations in 18 stages.

Eckerd filed its new plan Sept. 23 in U.S. Bankruptcy Court in Akron, Ohio, formalizing and sweetening a takeover proposal first floated by Eckerd chairman and ceo Stewart Turley in letters to Revco last spring. As such, it is one of three competing plans of reorganization for Revco now before the court.

Nevertheless, it appears to be getting a fair hearing from most of Revco's creditors.

The plan proposes that Eckerd assume all Revco's assets and its nearly $1.5 billion in debt obligations in exchange for nearly $1 billion in new debt securities, including secured notes and subordinated debentures. What makes the new plan more palatible to creditors is that roughly half those securities would be convertible to 8.9 million stock shares worth 22 percent of a combined Eckerd/Revco holding company.

"The Eckerd plan provides significantly improved values over previous Eckerd offers to acquire Revco and is the result of a series of discussions with various creditor groups," noted Eckerd spokesman Gene Ormond in a statement.

To finance the deal, Eckerd said it would return to public ownership with an offering of stock in the new holding company controlling both drug chains. Such a merger would add another 1,150 Revco stores to Eckerd's 1,676-store network and thrust it into five new mid-Atlantic and Northeastern states. It would also put Eckerd back on Wall Street for the first time since its leveraged buyout in 1986.

"Our plan offers a unique and equitable opportunity to bring Revco our of bankruptcy," said Turley. "We believe this plan provides superior value for Revco's creditors and allows the opportunity for a significant long-term value through synergy in the combination of Revco and Eckerd."

Revco and its creditors were cool to Eckerd's earlier expressions of interest, but neither side has rejected the new bid outright. Indeed, lawyers for various creditors' committees were at Eckerd headquarters here last week to review the proposal in detail and assess its long-term value.

Revco noted in a Sept. 23 statement that it is "reviewing" the proposal, and said the company "will support any plan that has consensus of the creditor constituencies, has a feasible capital structure, and which is confirmable by the bankruptcy court."

Creditor representatives reached by Drug Store News were also reluctant to criticize Eckerd's proposal before they'd had a chance to review it in detail. In some ways, both plans are similar: both call for a post-bankrupt Revco to carry less debt on its books than the reorganization plan proposed by Revco's board last June; and both would provide no payout or equity for the chain's current stockholders.

"We have a responsibility to look at this, even though we filed our own plan," said Stuart Hertzberg, an attorney representing Revco's trade creditors. "We are delighted that Eckerd has submitted this plan . . . and we're definitely interested in what they have to offer. We've been talking to them for over two months."