CVS snaps up Fred's specialty pharmacy unit for $40M
Update: This brief was updated to reflect additional information provided by CVS.
Fred's, Inc. on Monday said that it has reached a definitive agreement to sell certain assets of its specialty pharmacy unit EntrustRx to a subsidiary of CVS Health Corporation for $40 million. CVS confirmed that CVS Health will acquire EntrustRx in an email to Retail Dive.
The transaction is expected to close by the end of this month, subject to certain customary closing conditions, according to a Fred's press release. Fred's was advised on the transaction by Covington Associates and by Bass Berry & Sims.
The news comes just one week after the company announced it would pursue sales of its specialty pharmacy business.
Fred's has made good on part one of its pledge last week to pursue sales of its specialty pharmacy business and portions of its real estate portfolio, as outlined by newly arrived CEO Joseph Anto.
The drugstore retailer is tightening its belt and adjusting its approach in the aftermath of the failed merger of Walgreens and Rite Aid, which would have entailed Fred's taking on 865 stores across the eastern and western U.S. for $950 million in cash. That deal would have positioned Fred's as the third-largest drugstore chain in the U.S. — but now under Anto the retailer looks to be returning to its roots as a dollar store instead.
"One of Fred's top priorities for 2018 has been to monetize non-core assets and we are pleased to have reached an agreement for the sale of EntrustRx," Anto said in a statement Monday. "The cash proceeds will allow us to pay down a significant portion of our debt and also be used for general corporate purposes."
Some of those purposes include changing up its assortment to nurture a treasure hunt atmosphere, more like the days when the retailer was known as Fred's Super Dollar. The revamp includes bringing in more beer and wine sales and clearing out stale inventory, a process that Anto said last week is "one of the biggest drags on gross margin." In its place, Fred's is working on boosting private label brand penetration from its current 12% to over 40% over the next two years, which he said will drive both sales and gross margin.
For CVS, the acquisition shores up its push to become a medical provider. The company's first quarter pharmacy services sales rose 3.2% to some $32.2 billion, the company said last week. And its pending acquisition of health insurer Aetna for $69 billion, announced late last year, promises to greatly expand its already substantial medical operations, which include 9,700 CVS Pharmacy locations and 1,100 MinuteClinic walk-in clinics, as well as Omnicare senior pharmacy solutions, Coram infusion services and more than 4,000 CVS Health nursing professionals who provide in-clinic and home-based care nationwide.
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