Discount retailer Fred’s Inc. FRED has agreed to acquire Tennessee-based Reeves-Sain Drug Store, Inc. for approximately $66 million in order to strengthen its specialty pharmacy portfolio. Per the deal, Fred's will finance the acquisition with cash of $53 million and a note payable worth $13 million. The deal is expected to close in Apr 2015 and the company expects it to be accretive to earnings per share in the first full year following closing.
Reeves-Sain Drug Store is a private specialty and retail pharmacy company and includes both EntrustRx as well as the single Reeves-Sain retail pharmacy. EntrustRx provides specialty pharmaceuticals to treat complex conditions and diseases. Its main therapy lines include hepatitis C, oncology, growth hormones, multiple sclerosis, and rheumatology.
The acquisition of EntrustRx is a strategic one for Fred’s, as it will further expand its presence in the specialty pharmacy arena – the largest growth area of the pharmacy industry. EntrustRx will also offer Fred’s access to expanded specialty networks, expertise in different disease states and access to limited-distribution medications.
We note that Fred’s pharmacy department has been delivering strong results backed by higher scripts and sales. The ongoing expansion of pharmacy departments and growth of the specialty pharmacy division have given a boost to this category. The recent acquisition is also expected to add meaningful synergies and generate revenues.
Fred’s has a Zacks Rank #2 (Buy).
Investors interested in the retail discount sector can also consider Gordmans Stores, Inc. GMAN, Burlington Stores Inc. BURL, and Ross Stores Inc. ROST. While Gordmans sports a Zacks Rank #1 (Strong buy), Burlington Stores and Ross Stores have a Zacks Rank #2.
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