Rite Aid Withdraws Bid to Acquire Revco

Rite Aid Corp. on Wednesday withdrew its $1.8-billion offer to buy Revco DS Inc. following government claims that a combination of the nation’s top drugstore chains would dominate the business in the East and Midwest.

Rite Aid Chairman and Chief Executive Martin Grass said the deal’s expiration date of next Monday makes it impossible for the company to fight the allegations made by the Federal Trade Commission.

“It is apparent to us that the FTC has never been interested in reviewing the facts surrounding our intended merger with Revco in an impartial manner. Despite the facts presented that proved this transaction would be pro-consumer, the FTC kept changing the rules of the negotiations,” Grass said.

The FTC said Tuesday that it planned to go ahead with a lawsuit it announced last week to block the purchase. The decision represented the apparent rejection of a proposal by Rite Aid to sell 340 stores in an effort to avoid an antitrust fight with the government.

Grass accused FTC staff members of bias against the company and said the agency doubled the number of stores it wanted Rite Aid to sell.

“When Rite Aid made an offer which totally responded to all of the [FTC] staff’s demands, the bar was raised in such a way as to make it impossible for us to clear it,” Grass said.

The merged chain would have had 4,800 stores in 22 Midwestern and East Coast states, more than twice the size of its closest competitor. The company had already planned to close 300 overlapping stores, so the offer to sell another 340 amounted to a cut of about 8% of the remaining stores.

George Cary, deputy director of the FTC’s Bureau of Competition, said the deal was studied completely and that the decision to sue was approved by the commission 5 to 0. He denied accusations of bias.

“I think that those accusations reflect the fact that they wanted to do this deal, and we came to the conclusion that it was anti-competitive and not consistent with antitrust laws,” Cary said.

The commissioners contend that combining Rite Aid and Revco would lead to market domination and higher prescription prices in at least nine states.

The commission plans to sue in U.S. District Court in Cleveland. Revco is based in suburban Twinsburg, Ohio.

D. Dwayne Hoven, president and chief executive of Revco, said Grass telephoned him Thursday with news of the development. “Mr. Grass indicated to me that Rite Aid’s decision was due to antitrust concerns raised by the Federal Trade Commission,” Hoven said.

“We respect the opinion of the Federal Trade Commission on this matter,” Hoven said. “I believe, however, that the FTC’s ruling in this case does not preclude further consolidation in the retail drugstore business.”

Several state officials had planned their own suits, piggybacking on the FTC action. One was Ohio Atty. Gen. Betty Montgomery. Mark Weaver, a spokesman for Montgomery, said the abandonment of the deal is a victory for consumers.

“Had this merger gone through, more people would have paid more money for prescription drugs,” Weaver said.

Rite Aid, based in Camp Hill, Pa., has deferred its deadlines for completion of the deal repeatedly since it was announced in November. During that time, company executives and FTC regulators tried to work out an understanding to protect consumers, to no avail.

Revco shares plunged $1.875 to $24.125; Rite Aid fell $1.75 to $29.875. Both trade on New York Stock Exchange.

Industry observers had expected Rite Aid to go to court to save the deal. Drugstores have come under severe profit pressure from prepaid-drug-benefit plans, which demand lower prices in exchange for guaranteed business.

These plans now cover prescription medicines for more than 127 million Americans. The combined company could have more effectively fought off these discounts because of its market dominance; the FTC believed that would hurt consumers.

Industry statistics show that the merged company would control between 40% and 60% of the market in several cities and regions.

The deal’s latest deadline was to be this Friday. Under its terms, both chains could walk away from it on Monday without penalty.

The terms asked Revco shareholders to trade in their shares to Rite Aid for $27.50 cash per share, but uncertainty over the antitrust issues prevented most from accepting the offer.