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CVS leaps online with Soma purchase

The giant drug retailer will buy its way onto the Net with the $30 million purchase of Web druggist Soma.com.

With its $30 million purchase of online pharmacy Soma.com, drugstore chain CVS, already the largest player in the physical world, surges ahead of its bricks-and-mortar rivals. The deal puts pressure on online-only rivals Drugstore.com and PlanetRX.

For Soma.com, which had been regarded as No. 3 in the online market despite going online ahead of its rivals in January 1999, the all-stock deal brings CVS's massive buying power, marketing muscle, and 4,100 retail outlets.

"This acquisition gives us a distinct competitive advantage in marketplace," said Tom Ryan, CVS's chief executive, noting that CVS becomes the first drugstore chain with an online outlet. "The Internet is a logical extension of our business strategy of making life easier for our customers."

The acquisition accelerates a program that Ryan mentioned to Wall Street analysts last month during the company's earnings' call. CVS had $15.2 billion in revenue last year.

CVS has been building its own online store for months, but Ryan said the acquisition cuts by at least four months the time it will take for its integrated retail-and-Internet service to go live, which is now expected this summer. One key integration: Customers will be able to pick up prescriptions at CVS retail outlets, although the chain has no coverage west of the Mississippi River or in southern Florida.

That's a service online rivals PlanetRX and Drugstore.com cannot offer without an alliance with physical drugstores. But powerhouse online retailer Amazon.com has a 48 percent stake in Drugstore.com and is actively promoting it from Amazon's site.

"This deal helps to grow and validate the category," said Drugstore.com spokeswoman Debby Fry Wilson. "It will help bring customers to the online drugstore space and ultimately help all the players."

PlanetRX chief executive Bill Razzouk likewise pooh-poohed the acquisition.

"I believe CVS said all along that it planned to be in this space--it's not a surprise," said Razzouk, adding that he's not at all interested in selling out to a retail drug chain.

"We're very happy to be an [Internet-only] pure play," Razzouk said, adding that the purchase could help other Net pharmacies get quicker recognition by pharmacy benefit managers. Those firms have resisted letting online drugstores get into the business of filling prescriptions for HMOs and employer health plans.

When the deal closes in June, CVS said Soma.com will have access to all the drug plans that CVS currently fulfills. The online store will carry the CVS brand, but it also may retain the Soma.com name.

The acquisition also will expand Soma.com's offering of 3,000 non-prescription health and beauty products to 9,000, including CVS's private label brands. A photo-finishing service also will be added.

Razzouk also thinks CVS's $30 million was a bargain price, a point Ryan indirectly conceded.

"This was an opportunity to buy the entire company at a reasonable price," said Ryan. Although CVS is the largest retail drug chain, that is a shrinking segment of the pharmacy business--Razzouk said drugstore chains account for just 24 percent of the market.

"We believe this is the next rational step--to connect a virtual pharmacy with a physical pharmacy," said Tom Pigott, Soma.com's chief executive. No layoffs are expected because of the deal, and CVS also picks up Soma.com's automated distribution center in Ohio for fulfilling and shipping orders.

Other drugstore chains, including Walgreens have announced plans to come online. In San Francisco, Walgreens is testing a system with online grocer Peapod that lets its customers have their Walgreens prescriptions delivered with their groceries. Rite-Aid also has online plans.