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Eckerd drops bid for Revco

Jack Eckerd Corp. on Thursday dropped its bid to become the nation's largest drugstore chain when it withdrew its plan to acquire Twinsburg, Ohio-based Revco D.S. Inc.

The move by Eckerd to withdraw its reorganization plan appeared to clear the way for Revco to emerge from bankruptcy under its own plan. Revco has been in bankruptcy court reorganizing its finances since July 1988.

Revco will thank Eckerd for getting out of the way by paying the Clearwater-based company $7.5-million to cover expenses it incurred in its pursuit of Revco.

The sum "covers the majority of our expenses," said Eckerd spokesman Michael Zagorac.

Eckerd's abrupt withdrawal came after nearly a year of aggressive pursuit of Revco in a high-stakes chase that at various times involved three different suitors. Since November 1990, at least 10 reorganization plans and amended plans have been submitted by Revco management, creditors and competitors. The stakes rose with each plan.

"Confirmation of the Eckerd plan would have resulted in significant additional costs to Eckerd and even further delays in this case," said Eckerd chairman Stewart Turley in a prepared statement. Turley was unavailable for comment to the press Thursday, according to Zagorac.

Had Eckerd succeeded in acquiring the 1,150-store Revco chain, it would have created a publicly held company consisting of more than 2,800 stores stretching from New York to Texas.

Eckerd became a private company in a $1.2-billion leveraged buyout in 1986. As part of its reorganization plan for Revco, Eckerd proposed to return to the public markets as a way to raise money to fund the acquisition.

Eckerd will probably look at going public this year anyway, Zagorac said. According to analyst Dwayne Norris of Salomon Brothers Inc., Eckerd will probably be well-received in the public markets, despite its failed bid for Revco.

"Now what you have is much easier to predict," Norris said. "You have a company that the capital markets look upon favorably because it is one that set targets, met them and even exceeded them."

Because it is a leveraged company, Eckerd has lost money each year since its buyout, but the company has maintained sufficient cash flow to meet its debt obligations _ something investors look for in a leveraged company.

As recently as two weeks ago, Eckerd's acquisition of Revco seemed assured. Competitor Rite Aid Corp., which had submitted a reorganization plan that would give it control of Revco, pulled out in January when the bidding got too rich. Eckerd announced its reorganization plan had the support of essentially all of Revco's creditors. Revco appeared to admit defeat, saying it would submit to creditors' decisions.

Even a revised $925-million reorganization plan submitted by Revco on Jan. 22 did not appear to be a significant roadblock to Eckerd.

Enter Zell/Chilmark Fund, L.P., a Chicago company that invests in financially ailing companies. Zell/Chilmark offered Revco creditors up to $250-million in cash in exchange for their stock in the newly reorganized Revco.

Zell/Chilmark's offer valued Revco shares at $7.47 each, which gave creditors a safety net other reorganization plans lacked. If all Revco creditors holding stock tender their shares to Zell/Chilmark, the investment company will own 34-million of Revco's 35-million shares.

Eckerd's final offer, which had been sweetened several times, would have given Revco creditors more than $1-billion in cash, stock and debt in a restructured Eckerd/Revco. But the cash totaled just under $100-million, and debt-ladened Eckerd could not match Zell/Chilmark's deep pockets.

Revco creditors continued to waffle between the two plans. One major creditor announced it would vote for both Eckerd's and the Zell/Chilmark-supported plan.

"After this amount of time, there was no assurance any plan could close in a timely fashion," Zagorac said. "We felt it was time to look at other opportunities for growth."

But analyst Norris cautioned the Revco story has not yet ended and anything can still happen.

"This is a continuing saga, there are more chapters still to be written," Norris said. "There are a lot of wild cards out there."

He suggested a new bidder could yet emerge or that Eckerd or Rite Aid might reconsider and come back into the picture.

However, Zagorac said Eckerd will not return unless something happens to prevent Revco's plan from being accepted.

U.S. Bankruptcy Judge Harold White is scheduled today to receive Revco's disclosure statements detailing its often-revised plan for reorganization. Creditors are expected to vote on the plan by March 6.