Thrifty Payless Stores Being Bought Out

That local drugstore down the street soon may be owned by a Pennsylvania company, the nation's largest drugstore chain.

Wilsonville, Ore.-based Thrifty PayLess, which controls 68 percent of the drugstore business in the Seattle area, today agreed to be acquired by Rite Aid, the Camp Hill, Pa., company. The $2.3 billion deal, counting debt, will create a 26-state chain with more than 3,500 drugstores and $10 billion a year in sales.

Thrifty, under the PayLess name, operates 154 of its roughly 1,000 stores in Washington state, with most in the Puget Sound area. PayLess was the company that in 1988 plucked off Seattle's then-biggest drugstore chain, Pay'n Save.

Martin Grass, chairman and chief executive officer of Rite Aid, said the merged company planned to open 100 new stores annually on the West Coast and another 100 a year on the East Coast. He did not specify any particular state for expansion. "We will be targeting all the areas" of California, Oregon and Washington, he said.

Grass said the PayLess name would be replaced by Rite Aid if the merger is approved, but that no store closures or widespread layoffs are anticipated. Thrifty PayLess employs 32,000 people.

Grass said the 740 workers at Thrifty PayLess corporate headquarters would be laid off and fewer than two dozen positions would be added to Rite Aid's Camp Hill headquarters.

Fred Garcia, a spokesman for Rite Aid, said no date has yet been set for a shareholder vote. Grass hopes for Federal Trade Commission approval of the merger within 60 days. Regulators blocked an earlier effort by Rite Aid to acquire Revco D.S. Inc., because the two companies shared markets.

"There are no states in which the two companies have stores together," Garcia said of the planned Rite Aid and Thrifty PayLess merger.

Glass said it has become increasingly difficult for independent drugstores to compete and survive, but he did not think the planned merger by itself would have a direct impact on independent pharmacies.

Mike McMurray, marketing director for Bartell Drugs, a locally operated chain of 41 stores, said the location of Bartell stores and its 106-year history in the local market would help to keep the Bartell chain competitive.

Thrifty conducted a stock offering in April that, at $14 a share, allowed the company to be fully publicly owned. Rite Aid's offer requires Thrifty shareholders to trade each Thrifty share for 0.65 of a Rite Aid share.

Since Rite Aid closed Friday at $35.625, that values a Thrifty share at just over $23, or about a 65 percent increase since April. Thrifty stock closed Friday at $18.375, offering an immediate premium - in stock not cash - of 26 percent.

In late trading today, Thrifty PayLess stock was up $3.125 per share to $21.50, while Rite Aid was down $1.50 at $34.375.

Thrifty PayLess was formed in 1992 when Leonard Green, a Los Angeles investor, acquired Thrifty from Pacific Enterprises. In 1994, the Northwest unit, Pay Less Drug Stores Northwest, was acquired from Kmart. Besides the PayLess stores, the company also owns 44 Bi-Mart membership-discount stores, which once were part of the Pay'n Save empire. Glass said Rite Aid plans to sell the Bi-Mart stores.

Although shares of Thrifty PayLess were sold to the public in April, Green and Kmart retained significant positions. As a result, Green Equity Investors and Kmart, which own 43 percent of Thrifty PayLess, will own 7.6 percent and 6 percent of Rite Aid.

The consumer will benefit, said Glass, because cost savings from the deal will enable Rite Aid pharmacies to be competitive. Glass said he expects Rite Aid to save $65 million during the first full year.

Rite Aid operates 2,809 stores in 22 states and the District of Columbia. It is selling 200 stores in the South and plans to leave the region altogether. Annual sales are $5.9 billion. Thrifty, the West's largest drug chain, owns 1,007 stores in 10 states. Annual sales are $4.4 billion.