Debt offering to finance Big B expansion

Drug Store News, April 5, 1993 by Mike Troy

Big B is looking stronger than ever with nine consecutive quarters of increased earnings, annual sales that surpassed the $500 million mark for the first time, the recent acquisition of 45 Treasury Drug stores and a debt offering that will reduce the retailer's interest expenses.

At press time, a date had not been set for the securities offering, and Big B president and chief operating officer, Arthur "Mack" Jones, declined to comment on the Treasury acquisition, citing Securities and Exchange Commission regulations.

However, information in the company's prospectus indicates Big B will pay approximately $16.5 million for Thrift Drug Inc.'s 45 Treasury stores, 39 of which are located in the Atlanta area. Another $5 million will be needed to convert the stores to the Big B format.

The Birmingham, Ala.-based retailer currently has 64 stores in the Atlanta market. An additional $9 million will be spent on POS system improvements.

Funding for the acquisition will be provided by a $35 million (convertible subordinated debentures) debt offering. The proceeds will be used to reduce existing bank debt which consists of a $50 million revolving credit facility ($27.1 million outstanding) and a $15 million line of credit ($5.1 million outstanding). Those lines of credit will then be tapped to finance the Treasury acquisition, store conversions and POS system upgrades.

Thrift leaves Atlanta

Thrift Drug, a subsidiary of J.C.Penney, decided to abandon the Atlanta market to concentrate on its stronger markets in the mid-Atlantic area. "In Atlanta, there are already so many drug store players and we didn't have the share of the market that we do in most of our other trading areas," said Thrift spokeswoman Trish Orchard. "So, when a buyer became available, it made sense to sell the stores so we could strengthen our position in other markets."

Thrift continues to seek a buyer for 19 Treasury Drug stores remaining in Georgia that Big B opted not to purchase. "We have had some interest and we will continue to pursue those that are interested," Orchard said.

Just a few years ago, Big B barely had a toehold in Atlanta. The retailer jumped in fully in 1989 with the 85-store Reed Drug Co. acquisition. Now, with 45 Treasury stores, Big B has roughly as many stores in Georgia, the majority of which are in Atlanta, as it does in its home state of Alabama.

By the end of 1995, Big B plans to have nearly 400 stores. The Treasury buyout boosts the retailer's store count to approximately 350. Then, plans call for an additional 10 to 12 new store openings in fiscal 1994 and 15 to 20 new stores in fiscal 1995. Additional growth is anticipated through the acquisition of independent drug stores.

Future expansion is expected to come in the five Southeastern states, Alabama, Georgia, Mississippi, Tennessee and Florida, that comprise Big B's operating region and can be served by the chain's new 440,000-square-foot distribution center.