Walgreens to acquire Duane Reade

Deerfield, Ill. Walgreen Co. announced a definitive agreement Wednesday under which it will acquire New York-based Duane Reade Holdings from affiliates of Oak Hill Capital Partners in a cash transaction for a total enterprise value of $1.075 billion, which includes the assumption of debt.

With 257 stores located in the New York City metro area, Duane Reade is the largest drug store chain in the Big Apple. Walgreens currently operates 7,162 drugstores in all 50 states, the District of Columbia and Puerto Rico.

"Duane Reade is a compelling strategic acquisition that will immediately provide Walgreens with a leading position in the largest drugstore market in the U.S.," said Walgreens president and CEO Greg Wasson. "In addition, Duane Reade's recent initiatives in urban retailing, customer loyalty and private brand products support and accelerate Walgreens strategy to enhance the customer experience in our network of more than 7,100 stores across the country."

Duane Reade will continue to operate under its brand name after the transaction closes. Walgreens expects to retain Duane Reade's store, pharmacy and distribution center employees and many members of Duane Reade's senior management team following the acquisition. Over time, consolidation of core functions at the corporate offices will occur, Walgreens said.

The transaction is subject to customary conditions, including receiving regulatory approvals and would include all 257 Duane Reade stores, as well as the corporate office and two distribution centers. Walgreens will fund the purchase with existing cash and anticipates the transaction will close in its current fiscal year, which ends Aug. 31.

Walgreens expects to achieve synergies between $120 million to $130 million in the third year after closing the transaction. Additionally, the company will benefit from Duane Reade's existing net operating losses, which will provide additional value over time.

Over the past two years, Duane Reade has embarked upon a significant brand transformation initiative based upon extensive market research. Improvements include: dramatic new store designs with wide aisles and contemporary decor; a much improved pharmacy featuring lower service counters for more personalized patient interaction; introduction of "Doctor on Premises" walk-in health care; and a store-within-a-store prestige beauty concept called "Look Boutique," which elevates the merchandising of cosmetics and skin care products and features many prestige beauty brands.