Top Managers at Revco Make Buy-Out Offer

Revco D. S. Inc., one of the nation’s largest drugstore chains, said Tuesday that it received a $1.16-billion leveraged buy-out proposal from a management-led investor group.

The group, which includes Sidney Dworkin, Revco’s chairman and chief executive, offered to exchange $33 in cash and preferred stock “intended to have a market value” of $3 for each of Revco’s approximately 32.3 million common shares outstanding.

The announcement was made after Revco’s common stock closed at $32.75 a share, up 75 cents, in New York Stock Exchange composite trading.

Company spokesman Greg Wilson said he did not know when the directors would respond to the offer made by Dworkin and other top officers of the company.

But Jonathan Ziegler, a securities analyst with Sutro & Co. in San Francisco, said he thought the directors would be receptive to the buy-out.

2,000 Drugstores

“I don’t think there will be an awful lot of controversy in this,” he said. “I would assume this is a fair offer for the stockholders.”

Revco operates nearly 2,000 drugstores in 28 states, with stores particularly concentrated in Ohio, Texas, North Carolina, South Carolina, Georgia, Pennsylvania, Virginia, Tennessee, Arizona and Michigan.

The company also runs about 150 Odd Lot Trading stores that specialize in selling closed-out merchandise.

Revco said other members of the leveraged buy-out group included William B. Edwards, Revco’s president and chief operating officer, and R. Carroll Hudson, its chief financial officer.

In a leveraged buy-out, the purchase usually is made with mostly borrowed funds that are repaid with money from the target company’s cash flow or asset sales.

Revco said a committee of its independent directors would review the proposal.

Revco, with about 26,000 employees, has struggled financially over the past several quarters.

In its fiscal year ended May 31, 1985, the company’s net income tumbled 58% from the previous year to $38.9 million despite a 7.6% rise in sales to $2.4 billion.

Revco’s earnings in fiscal 1984 had jumped 40.5% to $93.4 million.

In its most recent financial report, Revco said its profit for the six months ended last Nov. 16 dropped to $14.8 million from $25.7 million a year ago. Sales rose to $1.19 billion from $1.04 billion.

Ziegler said Revco’s management probably wanted to put the company in private hands because it would allow it to be buffered from criticism from Wall Street analysts more concerned about quarterly earnings progression than long-term growth.

“The earnings aren’t where they could be,” Ziegler said. “That’s part of the problem, and that’s what led to the leveraged buy-out offer.”

Ziegler said he understood that Revco would be issuing an earnings report today for its third quarter and would show earnings of 58 cents a share, up from 44 cents a share a year ago.