Rite Aid to use new term loan debt, notes for purchase of Jean Coutu Group USA

By Sara Rosenberg

New York, Aug. 24 - Rite Aid Corp. plans on using new term loan debt and six-year notes to help fund its acquisition of Jean Coutu Group USA Inc., company officials said in a conference call Thursday.

Citigroup provided the financing commitment.

Rite Aid said that it will need about $2.2 billion in funding, not including the assumption of $850 million of Jean Coutu Group's 8½% senior subordinated notes, to pay the cash portion and address its fiscal 2007 debt maturities.

If the 8½% notes are not assumed, the cash portion paid in the transaction would increase to $2.3 billion from $1.45 billion and Rite Aid would issue additional debt securities to fund the increased cash consideration.

Rite Aid's existing $1.75 billion revolver will remain in place after the transaction although it will have to be amended to allow for the deal, officials said in the call. This revolver, sized as is, will be sufficient to support the company's capital requirements.

Rite Aid plans to draw on this existing revolver and use cash on hand for acquisition financing as well.

Under the transaction Longueuil, Quebec-based Jean Coutu Group Inc. will receive $1.45 billion in cash, subject to customary working capital adjustments, and 250 million shares of Rite Aid common stock, giving it a 32% common equity interest and 30.2% of the voting power in the expanded Rite Aid.

The Jean Coutu Group USA includes 1,858 drugstores, of which 337 are Brooks stores and 1,521 are Eckerd stores, and six distribution centers.

At close, Rite Aid's total leverage ratio will be around 6 times, up from a current ratio of 4.6 times, officials said in the call. This leverage ratio is expected to drop to 5.4 times after 12 months and drop further to 4.4 times after another 12 months.

Net synergies are estimated to be $150 million after the first 12 months following the close, with some net synergies experienced during the first 12 months.

Rite Aid said it expects the transaction to be accretive 12 months after the close by $0.09 to $0.15 per diluted share. It expects the transaction to be dilutive by $0.03 to $0.07 per diluted share for the first 12 months because of integration and non-recurring expenses associated with the transaction.

Latest 12 months adjusted EBITDA multiple is 9.2 times before net synergies.

The Jean Coutu Group plans on fully repaying its term loan A, term loan B and revolver, and plans on retiring its $350 million of 7 5/8% senior unsecured notes using proceeds from the merger agreement.

Closing of the transaction, which could be as early as Rite Aid's fiscal 2007 fourth quarter that begins Dec. 3 and ends March 3, 2007, and The Jean Coutu Group's fiscal 2007 third quarter that begins on Nov. 26 and ends Feb. 24, 2007, is subject to review under the Hart-Scott-Rodino Act, Rite Aid stockholder approval and other customary closing conditions.

Rite Aid is a Camp Hill, Pa., national drugstore chain.

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