Acquiring the Brooks and Eckerd Drugstore Chains

Acquiring the Brooks and
Eckerd Drugstore Chains
A Unique Opportunity for Rite Aid
Special Stockholders’ Meeting
January 18, 2007
Forward-Looking and
Cautionary Statement
This is an oral presentation which is accompanied by slides. Investors
are urged to review our SEC filings.
During today’s presentation forward-looking statements may be made.
Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those expressed or
implied in the forward-looking statements. Consequently, all forwardlooking statements made during this presentation are qualified by those
risks, uncertainties and other factors.
Please reference our SEC filings, which are available on our web site,
for a detail description of factors that could cause actual results to differ
materially from those expressed or implied in such forward-looking
statements.
Also during today’s presentation, non-GAAP financial measures are
referenced. The definition and purpose for using these measures and
historical and prospective reconciliations to GAAP measures are in our
Form 8-K we furnished the SEC which is available on our web site.
2
Attractive Stores,
Desirable Locations
Brooks Eckerd Store Base
31
6
38
165
47
54
356
286
1,858
Stores
1
2
87
137
21
25
258
49
107
188
Distribution Centers
As of August 24, 2006
3
Brooks Eckerd Improving
Sales Trends
Front-End
Pharmacy
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
Q1
Q2
Q3
2006
4
Q4
Q1
Q2
2007
Dedicated Integration Team Focused
on Successful Implementation
Integration Leadership Team
Mary Sammons, Jim Mastrian, Pierre Legault, Chris Hall
Integration Leader
Dedicated Resources
Chris Hall
Synergy Control
Communication,
Change Mgmt,
Training
IT
Infrastructure
Marketing &
Merchandising
Finance
5
Project Manager
Category Mgmt
IT
Development
Store
Construction
Communication
Project Mgmt Office
Supply Chain
Construction
Store Ops
Functional Detail Plan
Information
Legal & Internal
Services
Audit
Operations
Finance
Rx Ops
Supply Chain
Pharmacy Services
Pharmacy
Operations
Human Resources
Integration Plan Approach
Pre-Close Close
4 – 6 Months
Phase 1
12 Months
Phase 2
24 - 36 Months
Phase 3
Store
Analysis
Retrofit
Remerchandise
Planograms
Install IT
servers &
VSAT
Store
Systems
Conversion
Expand DC
capacity
Phase 4
Store
Remodeling
New Décor
Package
Supply Chain
Conversion
Maintain Continuity of the Business
6
Successful
Integration &
Conversion of
Brooks / Eckerd
Stores and
Distribution
Centers
Integration Plan Update
• Plan completed
• Conversion scheduled, timetables finalized
• Moving into implementation phase
– Purchase of computer/broadcast equipment
• 23 pilot stores identified
• Integration meetings with Brooks and Eckerd
associates in January/February
– Field management
– Store and pharmacy managers
• Field management structure finalized
7
Exterior Signage –
Before and After
8
Interior Signage –
Before and After
9
Interior Signage –
Before and After
10
Interior Signage –
Before and After
11
Interior Signage –
Before and After
12
Rite Aid
After the Acquisition
A Stronger National Drugstore Chain
with Increased Presence
Approximately
5,000
Stores Total
Rite Aid Will Have Approximately 5,000 Stores Nationally and
Become the Largest Retail Drugstore Chain in the Eastern US
13
Market Presence in Key
MSA’s After Acquisition
Leadership Positions in Eastern US MSA’s
Metro Area Rankings
Metro Area
Other
10%
#3 Share
12%
#2 Share
40%
Source: Metro Markets 2006
14
#1 Share
38%
Rank
Philadelphia, PA
1
Baltimore, MD
1
Pittsburgh, PA
1
Virginia Beach, VA
1
Buffalo, NY
1
Rochester, NY
1
Raleigh Cary, NC
1
New York, NY
2
District of Columbia
2
Providence, RI
2
Charlotte, NC
2
Richmond, VA
2
Stamford, CT
2
Albany, NY
2
Worcester, MA
2
Allentown, PA
2
Atlanta, GA
3
Boston, MA
3
Nashville, TN
3
Hartford, CT
3
Scale Similar to
Walgreens and CVS
Store Count
Approximately
Approximately
Approximately
5,000
se
a
e
r
Approximately
se
Inc Ba
e
3,300
%
56 Stor
in
Pro Forma
Source: Public filings
15
5,500
6,200
Pro Forma Revenues
and Adjusted EBITDA
Rite Aid Revenues
Rite Aid Pro Forma Revenues
Front End
Front End
37%
33%
63%
67%
Pharmacy
Pharmacy
Fiscal 2006 Revenue = $17.3 billion
Fiscal 2006 PF Revenue = $26.8 billion
Rite Aid Pro Forma Fiscal 2006 Adjusted EBITDA
$1,200
($ in millions)
$1,000
$369
$1,044
3.9%
$800
$600
$676
3.9%
$400
$200
$0
(1)
Rite Aid Adj EBITDA
16
(2)
Jean Coutu USA Adj EBITDA
Rite Aid PF Adj EBITDA
(1) Rite Aid Fiscal 2006 Adjusted EBITDA is a non-GAAP financial measure and is defined and reconciled to operating results in its Form 8-K furnished to the SEC.
(2) Jean Coutu USA fiscal 2006 Adjusted EBITDA is a non-GAAP financial measure and is defined and reconciled to operating results in its Form 6-K furnished to the SEC and in the
attached schedule.
Meaningful Net Reductions in Costs
and Expenses after Acquisition
Gross Profit
Improvement
Corporate
Administration
Reduction
Advertising Expense
Optimization
~$150 Million
Annual Full
Run-Rate Net
Reductions in
Costs and
Expenses
Distribution
Improvement & Other
Cost Savings
Achieve Full Run-Rate Net Reductions in Costs and Expenses
12 Months After Transaction Close
17
Pro Forma Adjusted EBITDA
Rite Aid Pro Forma Fiscal 2006 Adjusted EBITDA
($ in millions)
$150
$369
$1,194
4.5%
$1,044
3.9%
$676
3.9%
Rite Aid Adj
(1)
EBITDA
Jean Coutu USA
(2)
Adj EBITDA
Rite Aid PF Adj
EBITDA
Net Reductions
Rite Aid PF Adj
EBITDA with Net
Reductions
(1) Rite Aid Fiscal 2006 Adjusted EBITDA is a non-GAAP financial measure and is defined and reconciled to operating results in its Form 8-K furnished to the SEC.
(2) Jean Coutu USA fiscal 2006 Adjusted EBITDA is a non-GAAP financial measure and is defined and reconciled to operating results in its Form 6-K furnished to the SEC and in the
attached schedule.
18
Opportunities for Additional
Operational Improvements
Adjusted EBITDA Margin(1)
8.0%
n t
gi e n
r
a m
l M ove
a
ti r
en Imp
t
Po ide
s
Up
7.0%
6.0%
5.0%
4.0%
4.5%
3.9%
3.9%
3.0%
7.4%
7.3%
Opportunities at
Brooks & Eckerd Stores
• Front-end improvement
• Greater purchasing
efficiencies due to
increase in scale for both
Rite Aid and Brooks /
Eckerd
• Underperforming store
improvement
2.0%
1.0%
0.0%
Pro Forma
Pro Forma
• Rationalize distribution
center network
Without Net With Net
Synergies Synergies(2)
Revenue Synergies and Additional Operational Improvements
Provide Further Upside
19
(1) Adjusted EBITDA margin for Rite Aid based on fiscal 2006. Rite Aid Fiscal 2006 Adjusted EBITDA is a non-GAAP financial measure and is defined and reconciled to operating results in its
Form 8-K furnished to the SEC. Jean Coutu USA fiscal 2006 Adjusted EBITDA is a non-GAAP financial measure and is defined and reconciled to operating results in its Form 6-K furnished to
the SEC and in the attached schedule. EBITDA margin for Walgreens and CVS based on LTM November 30, 2006 and September 30, 2006, respectively.
(2) Assumes annual full run-rate net synergies of $150 million.
Expected
Financial Impact
• Annual net reduction in costs and expenses of
approximately $150 million 12 months after
closing
• Accretive to EPS 12 months after closing
– Dilutive first 12 months following closing
due to integration costs
• Additional free cash flow after one year
• Additional revenue potential
• A debt ratio below the level it is today within
12 to 24 months after closing
20
Next Steps
• Obtain FTC approval
– Response to second request certified this
week
• Finalize financing details
– Build term-loan syndicate
– Assume 8.5% Jean Coutu Group Notes
– Sell bonds
• Expected close
– Shortly after Q4, which ends March 3, 2007
21
Acquisition Is a Unique
Opportunity
• Adds attractive stores in desirable locations
• Gives Rite Aid the greater scale needed to compete more effectively
with our major rivals
• Creates leading drug retailer in the Eastern U.S.
• Strengthens our ability to take advantage of opportunities for growth in
our industry – and we believe Rite Aid has the experience, systems
and resources to make the most of these opportunities
• Enables us to better withstand industry and competitive challenges
• Provides opportunities for significant cost savings
• Potential to realize additional revenue synergies
• Improves growth and value proposition
22
Acquiring the Brooks and
Eckerd Drugstore Chains
A Unique Opportunity for Rite Aid
Special Stockholders’ Meeting
January 18, 2007