Rite Aid — Merger or Acquisition (August 2006)
37 slides from Rite Aid's merger presentation, Aug 29, 2006
Slide 1: Rite Aid's Acquisition of Jean Coutu USA
Rite Aid’s Acquisition of Jean Coutu USA August 2006
Slide 2: Forward-Looking and Cautionary Statement
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 act
Slide 3: Agenda
Agenda Mary Sammons Chairman-Elect, President & Chief Executive Officer Conclusion Q&A Kevin Twomey Executive Vice President, Chief Financial Officer Financial Impact Chris Hall Senior Vice President, Strategic Business Development Synergy Opportunities & Integration Plan Approach Mary Sammons Chair
Slide 4: Transaction Summary
Transaction Summary Mary Sammons Chairman-Elect, President & Chief Executive Officer
Slide 5: Transaction Overview
Transaction Overview Rite Aid has entered into an agreement to acquire all Brooks and Eckerd stores from The Jean Coutu Group; all stores to be re-bannered to Rite Aid All Brooks and Eckerd drugstores (approximately 1,850 stores) Six distribution centers Total consideration paid to The Jean Coutu Gr
Slide 6: Transaction Highlights
Transaction Highlights Significant Increase in Footprint and Operating Scale Creates the Leading Drug Retailer in the Eastern US Value Creation Through Meaningful Synergies Better Positioned to Capture Additional Growth Strong Infrastructure, Superior Operating Experience
Slide 7: Benefits to Key Constituents
Benefits to Key Constituents Opportunity to work for the third largest retail drug store chain in the US New and better tools to help provide superior customer experience More career growth, strong cultural fit Rite Aid’s commitment to be the customer’s first choice for health and wellness products,
Slide 8: Eckerd Overview
Eckerd Overview Store Footprint (1) Store Overview Free Standing vs. In-line Average Sales Per Store Avg. Sales Per Store = $5.0 million Avg. Store Script Per Week = 1,205 Strategic Benefit to Rite Aid Increases presence Enhances presence in key areas that will ensure delivery of synergies Entry int
Slide 9: Brooks Overview
Brooks Overview Store Footprint (1) Store Overview Free Standing vs. In-line Average Sales Per Store Avg. Sales Per Store = $5.7 million Avg. Store Script Per Week = 1,377 Strategic Benefit to Rite Aid The Brooks locations will enhance Rite Aid’s position in New England Entry into Massachusetts and
Slide 10: Strategic Overview
Strategic Overview Mary Sammons Chairman-Elect, President & Chief Executive Officer
Slide 11: Transaction Highlights
Transaction Highlights Apply programs, best practices, management capabilities across larger store network to improve profitability through cost savings, sales growth Management has significant expertise in retail mergers and integration Enhance competitive position in sector with strong projected g
Slide 12: A Stronger National Drugstore Chain with Increased Presence
A Stronger National Drugstore Chain with Increased Presence Pro Forma for the Transaction, Rite Aid will have Approximately 5,177 Stores Nationally and Will Become the Largest Drug Store Retail Chain in the Eastern US Rite Aid states Brooks Eckerd states Rite Aid Brooks Eckerd states No. of Rite Aid
Slide 13: Leadership Position in Key MSAs in the Eastern US
Leadership Position in Key MSAs in the Eastern US Leadership Positions in Eastern US MSAs Metro Area Rankings 3 Hartford, CT 3 Nashville, TN 3 Boston, MA 3 Atlanta, GA 2 Allentown, PA 2 Worcester, MA 2 Albany, NY 2 Stamford, CT 2 Richmond, VA 2 Charlotte, NC 2 Providence, RI 2 District of Columbia 2
Slide 14: Achieves Scale Similar to Walgreens and CVS
Achieves Scale Similar to Walgreens and CVS Source: Public filings Store Count 56% Increase in Store Base Pro Forma 3,319 5,177 5,401 6,171 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000
Slide 15: Substantial Growth Opportunities
Substantial Growth Opportunities Strong industry fundamentals and favorable demographics Grow pharmacy sales by improving the pharmacy experience Focus on customer satisfaction Attract new customers Add health and wellness programs Maximize generic opportunity Grow front end sales through optimized
Slide 16: Scaleable Infrastructure
Scaleable Infrastructure Current opportunity requires many of the same capabilities Rite Aid has successfully built: Strong supply chain processes Solid vendor relationships Consistent pricing strategy Consistent advertising and product promotion programs Innovative marketing against target customer
Slide 17: Rite Aid's Current Management Team Has Demonstrated Turn Around Success
Rite Aid’s Current Management Team Has Demonstrated Turn Around Success. . . Mary Sammons and Her Current Management Team Hired to Turn Around the Business Significant Challenges Faced By Current Management Team in 2000 Restore business stability Rebalance front-end inventory Restore price integrity
Slide 18: Resulting in Significant Improvement in Financial Performance
. . .Resulting in Significant Improvement in Financial Performance EBITDA Margin Improvement Increase in Front-End Sales Sustained Debt Reduction Interest Coverage Ratio Improvement Reduced Total Debt by $3 Billion Since Fiscal 2000 Current Management Team Current Management Team NM Current Manageme
Slide 19: Synergy Opportunities & Integration Plan Approach
Synergy Opportunities & Integration Plan Approach Chris Hall Senior Vice President, Strategic Business Development
Slide 20: Realize Meaningful Gross Profit and Cost Synergies
Realize Meaningful Gross Profit and Cost Synergies Gross Profit Improvement Advertising Expense Optimization Distribution Improvement & Other Cost Savings Corporate Administration Reduction ~$150 Million Annual Full Run-Rate Net Synergies Achieve Full Run-Rate Net Synergies 12 Months After Transacti
Slide 21: Net Synergy Detail
Net Synergy Detail Gross Profit Improvement Opportunities Annual Full Run-Rate Amount Front-end Private brand Shrink Vendor funds and contracts Pharmacy Drug purchasing – generic and branded Generic utilization Shrink Headcount reductions primarily from elimination of redundant functions Corporate A
Slide 22: Further Upside From Potential Revenue Synergies
Further Upside From Potential Revenue Synergies. . . Front-End Same Store Sales Pharmacy Same Store Sales USA USA Opportunities at Brooks & Eckerd Stores Improve the following: In-stock positions New item introductions Seasonal merchandise, sales and sell-through Unique marketing and merchandising p
Slide 23: Pro Forma and Continued Operational Improvements
Pro Forma . . . And Continued Operational Improvements Adjusted EBITDA Margin (1) Without Net Synergies Pro Forma With Net Synergies (2) Potential Margin Upside Improvement (1) Adjusted EBITDA margin for Rite Aid based on fiscal 2006. Rite Aid Fiscal 2006 Adjusted EBITDA is a non-GAAP financial meas
Slide 24: Dedicated Integration Team Focused on Successful Implementation
Dedicated Integration Team Focused on Successful Implementation Functional Detail Plan Integration Leadership Team Mary Sammons, Jim Mastrian, Pierre Legault, Chris Hall Integration Leader Chris Hall Synergy Control Project Manager PMO Communication, Change Mgmt, Training Category Mgmt Supply Chain
Slide 25: Integration Plan Approach
Integration Plan Approach Successful Integration & Conversion of Brooks / Eckerd Stores Retrofit Planograms Store Systems Conversion Supply Chain Conversion Remerchandising New Décor Package Phase 2 Phase 1 Phase 3 Phase 4 Store Analysis Store Remodeling Pre Closing 7 – 9 Months 12 Months 2+ Years S
Slide 26: Integration Expenditures
Integration Expenditures $0 $87 million Severance, retention and other payments Training Conversion reset services Supplies $200 million $450 million $75 million $25 million Upgrade distribution centers $125 million $45 million Remodel all Brooks and Eckerd stores $0 $380 million Convert all Brooks
Slide 27: Financial Impact
Financial Impact Kevin Twomey Executive Vice President, Chief Financial Officer
Slide 28: Terms & Conditions
Terms & Conditions Standstill period effective as long as Jean Coutu Group and its affiliates own 5% of the total voting power of Rite Aid and for nine months thereafter. Jean Coutu Group and members of the Coutu family will be subject to certain standstill restrictions: Cannot purchase additional R
Slide 29: Terms & Conditions
Terms & Conditions Satisfaction of customary conditions Transaction approval by Rite Aid shareholders Closing is conditioned upon receiving regulatory approval unless such approval requires the divestiture of more than $60 million of four-wall (plus advertising) EBITDA Financing conditions generally
Slide 30: Key Financial Metrics
Key Financial Metrics Rite Aid Revenues Rite Aid Pro Forma Revenues Fiscal 2006 Revenue = $17.3 billion Fiscal 2006 PF Revenue = $26.8 billion Rite Aid Pro Forma Fiscal 2006 Adjusted EBITDA ($ in millions) 3.9% 3.9% 4.5% (1) Rite Aid Fiscal 2006 Adjusted EBITDA is a non-GAAP financial measure and is
Slide 31: Rite Aid Reaffirms Fiscal 2007 Guidance
Rite Aid Reaffirms Fiscal 2007 Guidance (1) Sales Same Store Sales Adjusted EBITDA (2) $17.40 billion - $17.65 billion 2% - 4% $650 million - $725 million Diluted EPS ($0.07) per share - $0.02 per share Capital Expenditures (3) $450 million - $500 million Fiscal 2007 Guidance (1) Assumes transaction
Slide 32: Leverage Over Time
Actual Pro Forma Actual (2) Leverage Over Time Post transaction close Rite Aid will have sufficient liquidity from $1.75 billion revolver to fund working capital and capital expenditure needs Significant de-leveraging over 24 months post transaction close as Rite Aid realizes full synergies and bene
Slide 33: Conclusion
Conclusion Chairman-Elect, President & Chief Executive Officer
Slide 34: Transaction Highlights
Transaction Highlights Significant Increase in Footprint and Operating Scale Creates the Leading Drug Retailer in the Eastern US Value Creation Through Meaningful Synergies Better Positioned to Capture Additional Growth Strong Infrastructure, Superior Operating Experience Significant Value Creation
Slide 35: [LOGO]
[LOGO]
Slide 36: OIBA to Adjusted EBITDA Reconciliation
OIBA to Adjusted EBITDA Reconciliation Adjustments: 4 Non-Recurring Professional Fees ( 1 ) Other Non-Recurring Adjustments, net $369 Adjusted EBITDA 9 Non-Cash Asset Write-Offs, net 25 Closed Stores and Impairment Charges $332 Reported OIBA The following provides a reconciliation of Jean Coutu USA'
Slide 37: Additional Information and Where to find it
Additional Information and Where to find it Rite Aid intends to file with the Securities and Exchange Commission a proxy statement in connection with the proposed transaction. The proxy statement will be mailed to the stockholders of Rite Aid. STOCKHOLDERS OF RITE AID ARE ADVISED TO READ THE PROXY S