S&P puts Walgreen ratings on negative watch

New York City Standard & Poor's Ratings Services put Walgreen Co.'s ratings on negative watch Thursday, citing the company’s proposed $623 million acquisition of privately held Duane Reade Holdings.

On Wednesday, Walgreen agreed to the cash payment, as well as the assumption of $457 million in debt held by Duane Reed.

Walgreen is looking at the transaction as a way to strengthen its presence in New York -- a market where it has been a bit player in until now.

The acquisition is expected to close by the end of August.

Standard & Poor's said the potential deal will likely lead to softer earnings for Walgreen, but that if it does cut the company's "A+" corporate credit rating it will not lower it by more than one notch in investment-grade status.

Standard & Poor's also placed Duane Reade's ratings on positive watch, as Walgreen will probably assume the drug store operator's outstanding debt as part of its proposed buyout.