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Penney extends its deadline for Eckerd decision

Evidence continued to mount Wednesday that J.C. Penney Co. will have to break up its Eckerd Corp. subsidiary to sell it.

After shopping the nation's fourth largest drugstore for three months, J.C. Penney reportedly is now willing to field separate bids for Eckerd's Sunbelt stores and its stores in northern states, according to a Reuters Newswires report that quotes anonymous sources.

Penney, which had previously set a goal of deciding what to do with the struggling Largo drugstore chain by Saturday, has extended the next round of bids to Feb. 5.

Officials at Penney in Plano, Texas, declined to confirm the Reuters report. They said the bidding is all part of their information-gathering process to decide whether to keep Eckerd, spin it off or sell it. Selling the chain in pieces increases the likelihood that Eckerd's corporate headquarters in Largo will not survive.

"Eckerd is not strong enough to stand alone without substantial capital expenditures to fix its real estate and technology," said Mark Husson, a securities analyst with Merrill Lynch who doubts "there will be a big company called Eckerd at the end of this process."

He estimates the bids will be limited to the value of Eckerd's real estate. He estimates Eckerd going for a 15 percent to 20 percent discount at $3.5-billion to $3.8-billion. J.C. Penney paid about $3.3-billion for Eckerd in 1996, then merged it with its 800-store Thrift Drug chain.

Analysts have expected the chain to be offered in pieces. Antitrust issues and financial limits of the prospective bidders make it unlikely Eckerd and its 2,700 stores can be sold in one piece.

Jean Coutu Group, the Canadian chain that owns Brooks Pharmacy in New England, has teamed up with investment funds controlled by Blackstone Group and Thomas H. Lee Partners in the bidding. CVS Corp., which is most interested in Eckerd's 1,100 stores in Florida, Texas and Louisiana, has teamed up with Kohlberg Kravis & Roberts, a New York buyout firm that controls the Shoppers DrugMart chain in Canada. Rite-Aid Inc., which pulled out of Florida several years ago, is active in the bidding. It has teamed up with Leonard Green & Partners and Texas Pacific Group.

Husson explained why drugstore chains remained the most likely bidders for pieces of Eckerd.

"One fewer brand, real estate developer, promotional operator and pharmacist employer is a great thing for industry productivity," he said.

_ Mark Albright can be reached at albrightsptimes.com or (727) 893-8252.

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