Walgreen to buy drugstore operator Duane Reade, would add 257 stores in NYC metro area
Walgreen Co. said Wednesday it has agreed to buy the drugstore operator Duane Reade in a move to expand operations in the New York City metropolitan area.
Walgreen, one of the nation’s biggest drugstore operators, said it would pay about $623 million for Duane Reade Holdings Inc. Including $457 million in debt held by Duane Reade, the transaction is valued at $1.08 billion.
Duane Reade, which has been operating in the New York area for 50 years, is owned by a group that includes affiliates of the buyout firm Oak Hill Capital Partners.
The deal, which requires regulatory approval, would include all 257 Duane Reade stores in the New York City metropolitan area, along with the corporate office and two distribution centers. Most of those stores are in Manhattan.
Walgreen, based in Deerfield, Ill., operates 70 stores in the New York area and had 7,162 stores overall as of Jan. 31. The company opened a new store in Times Square in 2008.
Walgreen said Duane Reade stores will keep their name after the deal closes, and it will decide over time on how to combine the two brands.
The deal unites two chains that are in transition. Walgreen is trying to improve sales by converting hundreds of stores to a new layout, and Duane Reade has done the same with 30 of its stores. Walgreen suggested it could get new ideas from Duane Reade. It plans to continue renovating Duane Reade stores, and all of them should be converted to the new format in four or five years.
Some analysts feel Walgreen is struggling to sustain its sales while making changes to its store layouts and its array of products. It plans to convert 3,000 stores by fall 2010.
The company will fund the buyout with existing cash and expects the deal to close by Aug. 31, the end of its current fiscal year.
Walgreen expects the deal to cut its profit by close to 10 cents per share in fiscal 2010 and by about 3 cents per share in fiscal 2011. The buyout will cut costs between $120 million and $130 million by the third year.
Shares of Walgreen fell 37 cents to $33.71 in premarket trading.