Ah, memories. When I saw that drugstore chain CVS (NYSE:CVS) said earlier this week that it would be interested in buying some Eckerd from J.C. Penney (NYSE:JCP), I couldn't help but think back to any number of similar stories from years past.
Most went like this:
J.C. Penney, looking to unlock the "value" of its drug store operations, would spin off, or sell, or issue a tracking stock for Eckerd, thus getting the earnings multiple it deserved -- rather than a multiple associated with a sleepy ol' department store chain nobody ever liked. (J. C. Penney was, for a time, a big buyer of drugstores, Eckerd coming on board in 1996.)
Well, we waited... and waited. Nothing happened. It felt a bit like sitting at home waiting for a girl to call -- at least, from what I've heard. Suddenly, it seems, she's back in town and eager to go out.
We'll see. Penney is considering options for all its businesses -- it did, after all, agree to sell its Mexican department stores earlier this week. And in mid-October, the company responded to questions from the media and analysts about a potential Eckerd deal by, in essence, saying it's considering options including a merger, spin-off, sale, or even keeping Eckerd on board.
CVS, for its part, would likely face serious regulatory hurdles should it try to buy all 2,700 Eckerd stores, but it probably doesn't want to. More likely, CVS will pursue select properties -- perhaps especially in the Southwest, where it has limited exposure. The drugstore business is a land-grab and CVS, Walgreen's (NYSE:WAG), and others might be interested in snapping up ready-made stores and distribution capabilities.
Whatever the company decides, it will be closely watched. The addition of chairman, CEO, and retail turnaround guru Allen Questrom has been a boon for stockholders, reinvigorating the shares since he signed on in late 2000. But 2003 has been challenging, with same-store sales falling year over year through the end of September.
Questrom's work clearly isn't done. It will be a bit more so when he makes a decision on Eckerd, expected by the end of this year.
Dave Marino-Nachison can be reached at [email protected].
