updated 6/4/2007 7:07:33 PM ET 2007-06-04T23:07:33

Rite Aid Corp. said Monday it has closed an approximately $4 billion cash-and-stock deal to add more than 1,850 Brooks and Eckerd stores and six distribution centers in a bid to keep up with its rapidly growing competitors.

The nation’s third-largest drugstore chain will expand its already strong presence on the East Coast, although some analysts have criticized the price being paid for underperforming stores.

The acquisition is Rite Aid’s first major deal after a turnaround team arrived in late 1999 to pull the company from the brink of bankruptcy.

“Today we are a bigger, stronger company and we’re in a much better position to take advantage of growth in the drugstore sector,” Rite Aid’s Chief Executive Mary Sammons said in a telephone interview.

Sammons, who was part of the turnaround team, was appointed chairman Monday, taking over for Bob Miller, who will remain on the board.

Under the deal, Rite Aid is paying $2.36 billion in cash and issuing 250 million shares for the U.S. Eckerd and Brooks operations of Canada’s Jean Coutu Group Inc. Shares of Rite Aid closed up 19 cents at $6.55 in trading Monday.

The agreement, announced Aug. 24, originally required Rite Aid to assume $850 million in debt from Jean Coutu Group. Rite Aid increased its cash offering to $2.36 billion after Jean Coutu Group initiated a tender offer for the debt.

The acquisition made Jean Coutu Group the largest Rite Aid shareholder, with approximately 32 percent of common stock and about 30 percent of voting power.

With the Brooks and Eckerd buyout complete, Rite Aid will operate about 5,160 stores in 31 states and the District of Columbia, although it has said it will close up to 200 stores to avoid overlap. Jobs will be available for all affected store employees, although about 475 employees from Jean Coutu’s U.S. headquarters in Warwick, R.I., will be let go in the coming year, Rite Aid said.

CVS Corp., based in Woonsocket, R.I., is currently the nation’s leader with more than 6,160 drug stores. Deerfield, Ill.-based Walgreen Co. operates more than 5,700 stores. Both companies’ stores also perform better than Rite Aid’s.

“We’ll close any gap that there is with our competitors in those neighborhoods that we operate in,” Sammons said.

Federal and state regulators required Rite Aid to divest 26 stores, all in East Coast states, a number that was smaller than Rite Aid originally expected.

Camp Hill, Pa.-based Rite Aid plans to spend more than $1 billion rebranding and remodeling the acquired stores and distribution centers in the next several years. The new stores are to be converted to Rite Aid’s systems and signage within 16 months, the company said.

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