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ADVANCE PARADIGM, INC. TO ACQUIRE PCS HEALTH
SYSTEMS FROM RITE AID CORPORATION
Combined company will be the nation's largest pharmacy benefit
manager, providing services to 75 million Americans
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FOR IMMEDIATE RELEASE
Irving, TX and Camp Hill, PA (July 12, 2000)--Advance Paradigm, Inc.
(Nasdaq:ADVP), a leading health improvement company, and Rite Aid
Corporation (NYSE, PSE: RAD), one of the nation's largest drug store
chains, today announced a definitive agreement under which Advance Paradigm
will acquire 100% of the equity of Rite Aid's PCS Health Systems, Inc.
subsidiary for $1 billion.
PCS Health Systems is currently one of the nation's largest drug benefit
management companies, providing pharmacy-related services to employers,
health plans, government agencies, and other benefit plan sponsors.
Advance Paradigm will pay Rite Aid $675 million in cash and provide Rite
Aid with $200 million in senior subordinated notes. Advance Paradigm will
also issue Rite Aid $125 million in new equity. The transaction will be
accounted for as a purchase and is anticipated to be accretive on a cash
EPS basis immediately and accretive on a GAAP EPS basis in all four
quarters for the fiscal year ending March 2002, which will be the first
full year of combined operations.
The boards of both organizations have approved the transaction, which is
anticipated to close in the quarter ending September 30, 2000. The cash
portion of the purchase price will be financed with senior secured debt
committed by Merrill Lynch and equity financing of $150 million committed
by Joseph Littlejohn & Levy, Inc. (JLL). The transaction is subject to the
approval of the Federal Trade Commission and by certain of Rite Aid's
lenders.
Following the acquisition, Advance Paradigm will be the nation's largest
provider of health improvement services, offering a full range of pharmacy
benefit management, disease management, clinical research, and health
information and analytic capabilities. Advance Paradigm plans to change its
name at closing to Advance PCS and will remain independent.
"The acquisition of PCS is a tremendous gain for the clients of both
organizations and their plan members," said David D. Halbert, Advance
Paradigm's Chairman and Chief Executive Officer. "Both companies are
focused on helping health plan sponsors measure and improve health outcomes
while controlling drug and related health care costs. Together, we
immediately achieve the scale necessary to deliver increased value to our
customers in the new economy."
ADVANCE PARADIGM & PCS HEALTH SYSTEMS--PAGE 2
He continued, "By combining our organizations, we achieve critical mass,
yielding enhanced operating efficiencies, a broader array of complementary
clinical services, and new capabilities, particularly in the e-health
arena, that provide additional value to our clients at this critical
juncture in the transformation of the healthcare industry."
Pharmacy benefits, once a small portion of total healthcare costs, have
captured national attention recently as prescription drugs became the
fastest-growing component of health benefits. In addition, Congress is
considering proposals to extend drug benefit coverage to 39 million
Medicare beneficiaries. Scale and geographic concentrations of members are
important attributes of pharmacy benefit management companies seeking to
successfully manage drug costs.
Through the combined client base - which includes employers, Blue Cross
Blue Shield and other health plans, third party administrators, state and
federal government agencies, Taft-Hartley groups, and other health benefit
plan sponsors - Advance Paradigm will serve approximately 75 million
Americans. On an annual basis, the combined organization will manage
approximately 450 million drug claims, representing $16 billion in drug
expenditures, and have approximately $3.2 billion in revenues.
Rite Aid Chairman and Chief Executive Officer Robert G. Miller said, "We
are very pleased with the agreement reached with Advance Paradigm. Selling
PCS is another step forward in Rite Aid's turnaround because it allows us
to substantially improve our financial position by reducing debt.
"While PCS is a unique and desirable asset, our priorities are to
strengthen Rite Aid's balance sheet and to concentrate 100 percent on our
core drugstore business," Miller continued. "This transaction also provides
the opportunity to continue to participate in the growth of the pharmacy
benefit management industry through our minority interest in Advance
Paradigm."
Ramsey A. Frank, Senior Managing Director of JLL, said, "JLL is pleased to
be able to partner with Advance Paradigm and make a significant investment
in the company as part of its acquisition of PCS Health Systems. We are
excited to be investing in what we believe is the market leader in a
dynamic, fast-growing industry. We look forward to working with David D.
Halbert and the combined management teams as they bring together the two
companies to provide added value to clients and to shareholders."
Halbert noted that he intends for the two organizations to maintain their
respective claims processing systems, mail service pharmacy facilities, and
other customer service platforms. "We are absolutely committed to
maintaining the highest service levels for our clients and their members,"
he said. "We will focus on aligning our strategic assets, including our
relationships with pharmaceutical manufacturers and retail pharmacies, our
sales and customer management divisions and our e-business initiatives."
Jean-Pierre Millon, President and Chief Executive Officer of PCS Health
Systems, said, "Controlling drug costs is of paramount importance to health
plans and patients. We are very excited about the combination of Advance
Paradigm and PCS, which will allow us to expand our capabilities and
provide new and innovative solutions to the challenges our clients face."
ADVANCE PARADIGM & PCS HEALTH SYSTEMS--PAGE 3
Millon will become a member of the board of directors of Advance Paradigm
and will assist in the transition. Headquarters of the combined company
will be split between Irving, Texas and Scottsdale, Arizona. As a result,
David A. George, President of Advance Paradigm, will re-locate to
Scottsdale upon close of the transaction.
ABOUT ADVANCE PARADIGM, INC.
Advance Paradigm, Inc. is an independent provider of health improvement
services. The company provides a continuum of highly effective pharmacy
benefit and health benefit management services designed to build better
health. Its capabilities include integrated pharmacy networks, innovative
clinical services, customized disease management programs, clinical trials
and outcomes research, information management, direct-to-consumer programs
and other services. The company currently manages 165 million pharmacy
claims and $6 billion in drug expenditures annually for its clients, which
include Blue Cross and Blue Shield organizations and other health plans,
Fortune 500 employers, Taft-Hartley groups, and other health plan sponsors.
For more information on Advance Paradigm, please visit the company's web
site at www.advanceparadigm.com or www.buildingbetterhealth.com.
ABOUT RITE AID CORPORATION
Rite Aid is one of the nation's leading drugstore chains with annual
revenues of over $14 billion and approximately 3,800 stores in 30 states
and the District of Columbia. Rite Aid owns PCS Health Systems, Inc., which
provides pharmacy benefit management programs and services. Rite Aid also
owns approximately 18 percent of drugstore.com, a leading online source for
health, beauty and pharmacy products. Information about Rite Aid, including
corporate background and press releases is available through the company's
web site at http://www.RITEAID.com.
ABOUT PCS
Based in Scottsdale, Ariz., PCS Health Systems, Inc. (www.pcshs.com) is one
of the nation's largest pharmacy benefit managers, providing drug and
health management solutions for health plans and patients. As America's
premier pharmaceutical care system, PCS works to encourage proper drug use
and helps to lower the cost of drugs for its clients. PCS manages and
monitors approximately 300 million individual prescriptions each year
representing $10 billion in drug expenditures.
ABOUT JLL
JLL is a leading New York investment firm that specializes in leveraged
buyouts, build-ups, corporate restructurings and turnarounds, generally in
partnership with leading executives and corporations. Over the past 10
years, JLL has made investments in a wide range of industries, including
food and consumer products, automotive parts, healthcare, media and
telecommunications, commodity and specialty chemicals, building products,
transportation, and industrial manufacturing and distribution.
ADVANCE PARADIGM & PCS HEALTH SYSTEMS--PAGE 4
FORWARD LOOKING STATEMENTS
Any statements included in this press release which are not historical
facts and which concern predictions of economic performance and
management's plans and objectives constitute forward looking statements
under the safe harbor provision of the Private Securities Litigation Reform
Act of 1995. These statements involve risks and uncertainties that could
cause actual results to differ materially from the forward-looking
statements. Factors which would cause or contribute to such differences
include, but are not limited to, factors detailed in the Company's
Securities and Exchange Commission filings.
Contacts for Advance Paradigm:
DANNY PHILLIPS, Chief Financial Officer
Advance Paradigm, Inc., (800) 749-6199
RCG Capital Markets Group Inc., (480) 675-0400
Retail: JIM ESTRADA, JOE DORAME
Analysts/Institutional: JOE DIAZ, MAX RAMRAS
Internet: www.rcgonline.com
JOSE VILLASENOR, Ketchum Public Relations
(214) 259-3426
Contacts for PCS:
BLAIR JACKSON, Director, Public Relations
(480) 391-4138
Contacts for JLL
RICK MATTHEWS, Rubenstein Associates
(212) 843-8007
Contacts for Rite Aid:
Media: KAREN RUGEN, Sr. Vice President,
Corporate Communications and Public Affairs, Rite Aid
(717) 730-7766
Investors: DAVE JESSICK, Sr. Exec. Vice President and
Chief Administrative Officer, Rite Aid
(717) 975-5750
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