The former chairman of Peoples Drug Stores Inc., Sheldon (Bud) W. Fantle, yesterday announced that he was taking over his previous rival, Dart Drug Stores Inc., by making an $8 million investment in the financially troubled retailer.
Fantle, 64, will replace Dart Drug Chairman Stephen Hansbrough, who has made himself famous locally over the past year through television and newspaper advertisements in which he personally promoted changes at the 80-store discount drugstore chain. Fantle's 39-year-old son, Jeffrey, will become president.
Hansbrough, 41, will retire as soon as Fantle's acquisition is completed later this week. He was not available for comment yesterday.
For his $8 million, Fantle will get a 20 percent interest in the debt-ridden company, which at the end of its latest fiscal year in July had a net worth of $1.1 million. At the same time, because of Dart's financial and competitive situation, "Fantle is buying a lot of headaches too," said Bruce Buckley, editor of Drug Store News.
By all accounts, Fantle's takeover of Dart will significantly increase the already intense competition in the local drugstore market.
"It's going to cause the Washington drugstore market to become much more sharply competitive and cause everybody to scramble for market share," said Kenneth M. Gassman Jr., who follows the local drugstore market as an analyst for Wheat, First Securities.
Fantle "knows this market inside and out, and the best part is, he knows his No. 1 competitor inside and out," Gassman said. "So he'll be operating from a point of strength."
Fantle's ascension to the chairmanship of Dart comes at a critical time for the local drugstore industry. The major chains -- Dart, Peoples and Rite Aid -- are making major changes in the hope of becoming more competitive, especially with Giant Food Corp. and Safeway Stores Inc., which offer pharmaceutical services in their supermarkets.
Rite Aid Corp. is in the midst of changing the format of the Gray Drug Fair stores it acquired last summer, transforming them into smaller outlets primarily selling health, beauty and drug products.
Meanwhile, Peoples -- having undergone a major management change last January, when Fantle was abruptly dismissed -- is remodeling its stores and eliminating many general merchandise items, such as garbage cans, radios and cookware, to put more emphasis on pharmaceutical, cosmetic and health products.
Fantle "will be an outstanding competitor," said David Eisenberg, chief operating officer of Peoples and a longtime associate of Fantle. "We think he will be a good competitor that will be able to challenge the market place and make better merchants out of all of us."
Fantle was let go from Peoples last January shortly after the drugstore's parent company, Imasco Ltd., released financial results for the 827-store chain showing a $1.2 million operating loss in the quarter that ended Sept. 31, 1986. A year earlier, Peoples had a $7.65 million operating profit in the quarter.
In its most recently reported results, Peoples said it once again was profitable, but its $1.4 million profit in the period that ended June 30 was far less than the $10.7 million profit a year earlier.
Before his departure from Peoples, Fantle had earned a reputation in the industry for having turned around two sleepy chains -- first the Ohio-based Lane Drug chain, and then Peoples, which he joined in 1975 when Lane Drug merged with Peoples.
"I did it twice. I'm going to do it one more time," Fantle said yesterday. "I think Dart is a great opportunity. Their locations are good. Their people are good. There is room for Dart, especially with the fact that Drug Fair has become a bantam operation under Rite Aid. It's fun to get back in the business. I missed it."
Industry experts predicted that Fantle would seek to downplay Dart's sales promotions while striving to upgrade its pharmaceutical business.
Under the the terms of the deal, which was completed late Sunday night, Fantle and a group of "leading Washington people," whom he declined to identify, will buy 3.7 million new shares of Dart common stock for $8 million in cash -- or about $2.16 a share. Dart stock closed yesterday at $2.12 1/2, up 62 1/2 cents a share.
Because the shares are new, the $8 million will go directly into Dart's coffers and not to existing shareholders, who will remain stockholders of the company.
Fantle also has options to buy 2.8 million additional shares for $2 a share. These options are exercisable only if Dart's stock trades at $4.75 or more a share.
Despite a major financial restructuring last summer that enabled Dart to slash its debt in half, the company still has financial problems, Buckley noted. "They were having a major problem getting products on the shelf. They have been looking for more cash," he said.
Many of Dart's problems stem from the $160 million sale of the company in 1984 by Washington's Haft family to the management team that was operating the stores, including Hansbrough.
The Hafts wanted to spin off the chain, which Herbert Haft founded in the mid-1950s, to concentrate on other retailing ventures.
To finance the debt incurred in the acquisition, Dart's management last year issued $160 million in bonds.
But a downturn in drugstore sales in the summer and fall of 1986 made it increasingly difficult for the company to meet the $28 million annual interest payment.
As a result, Dart persuaded its debt holders last summer to swap their higher-interest bonds for a combination of lower-rate notes and stock with about half the value of the bonds.
Despite the refinancing, the company still had problems. "Some companies had them on a fairly short credit leash," Buckley said. "Fantle has his work cut out for him, but at least now the chain will have an infusion of badly needed cash."