Walgreens To Purchase New York Chain Duane Reade

By Amy Perry in News on Feb 17, 2010 6:20PM

In effort to expand its presence in the Northeast, Walgreens will buy Duane Reade drugstores in the New York metropolitan area for $618 million, plus $457 million in debt, to become the largest U.S. drugstore in New York City. According to Crain's, Walgreens Chief Executive Greg Wasson said the purchase puts Walgreens on par with its competitors — particularly its closest rival, CVS Caremark Corp. Located on high-traffic corners throughout the city, Duane Reade will continue to operate under its brand name and Walgreens expects to retain the employees at its stores, pharmacies and distribution centers and "many members of Duane Reade's senior management team" following the acquisition closing in August.

Retail analysts estimate Walgreens could fetch $1 billion or more with the purchase of Duane Reade, which is owned by private equity firm Oak Hill Capital Partners LP and operates 257 drugstores in the New York metropolitan area. Wasson told Crain’s that, “it would take many years of organic growth to reach the store count that this acquisition brings us.” Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York-based retail consulting and investment banking firm, told BusinessWeek, “it’s the only way Walgreens is going to get a powerful position in New York because Manhattan real estate is very difficult to get.”

Walgreens said today in a conference call, that the cash transaction will dilute profit in the first year after closing and add to earnings the following 12 months and thereafter. Last year, Duane Reade began making improvements to its store, such as widening the aisles and offering new products. Walgreens spokesman Jim Cohn told Deal Journal that Walgreens will “contribute resources” to “gradually” continue those improvements. Walgreens fell 38 cents to $33.70 at 9:12 a.m., before the start of New York Stock Exchange composite trading. The shares rose 49 percent last year.