More Dirty Little Secrets

After the Albright articles got around, more bad news bubbled up from other sources:

• No provision was made in the deal for the fact that data software at Eckerd was totally incompatible with Penney's.

• Not only that, the basic systems infrastructures could not interact. Penney ran a 56K frame relay system, Eckerd a satellite system designed by Accenture, the IBM arm, that was contracted for several more years .

• Reportedly, no one from JCPenney's information services spoke to their counterparts at Eckerd before the deal was signed.

• Eckerd was being sued by federal and state governments for fraud in filling managed-care prescriptions.

• There were also several public perception problems that were bound to hurt Eckerd earnings. Examples were Eckerd's low ranking for value and service and practical mistakes like forgetting to apply for pharmacy licenses in the confusion of all the store conversions.

• Eckerd had "gone private" earlier and carried the usual heavy debt associated with LBOs (leveraged buyouts). While deal accountants had to acknowledge this in so many words and numbers , its importance was obfuscated by burial in annual report "notes" (that few stockholders bother to read).

So how did synergistic catalog desks in 2,500 (net) Eckerd stores play out? Only 330 were installed before the program was tabled. In January 2001, Albright reported that the desks were being dismantled, beginning with immediate removal of twothirds of them. Drugstore desks were "just a test," said Penney's new PR head, Rita Flynn. And all that easy prescription money from seniors in the South? The business was there, but as hospitals and physician groups have learned, contracting with managedcare providers requires the smarts and finesse of a derivatives dealer . A tricky task for a sideline .