J.C. Penney to Acquire Drugstore Chain

J.C. Penney Co. said it’s buying Genovese Drug Stores Inc. for $432 million in stock in a move to expand its fast-growing drugstore operations.

The department store operator, which acquired Eckerd last year, will pay Genovese shareholders Penney stock valued at $30 a share--Genovese’s record closing price Monday. Penney will also assume $60 million of Genovese’s debt.

The Eckerd drugstore chain has been the bright spot at Penney since its acquisition for $3.3 billion. While department store sales fell 5.2% in the third quarter, pulling down company profit, revenue at Eckerd rose 10%.

The acquisition of Melville, N.Y.-based Genovese gives Penney 141 drugstores in New York, New Jersey and Connecticut, for a total of 2,900 drugstores in 20 states across the Northeast, Midwest and Sunbelt. The purchase also gives Penney a foothold in the New York City region without having to build its own stores in one of the most crowded real estate markets in the country. The acquired stores will be renamed Eckerd.

“This transaction is a logical extension of our drugstore expansion strategy,” said James E. Oesterreicher, chairman and chief executive of Plano, Texas-based J.C. Penney.

The transaction is expected to reduce earnings for fiscal 1999 but modestly increase them in 2000, he said. Penney expects to close the deal in the first quarter of 1999.

Penney spokesman Duncan Muir said the Genovese acquisition does not reflect a new emphasis by the company on drugstore operations.

“The department store is still the largest portion of the company,” he said. “This acquisition is not material. For J.C. Penney, it gets us into a [drugstore] market we’ve never been in before.” Penney operates about 1,200 department stores worldwide.

J.C. Penney shares fell $2.44 to close at $52.50 on the New York Stock Exchange.