Walgreens to Buy Duane Reade

MARK HAMSTRA

DEERFIELD, Ill. — Drug store giant Walgreen Co. said last week it has agreed to buy Duane Reade, the iconic New York City banner, for $1.075 billion, including assumption of about $457 million in debt.

Walgreens said it plans to retain the name on the stores and continue the banner's current remodeling efforts, and it hopes to bolster efficiencies and strengthen the chain's pharmacy and health and wellness operations.

Andrew Wolf, a Richmond, Va.-based analyst with BB&T Capital Markets, said he sees the potential for Walgreens to bolster Duane Reade's prescription-drug sales.

“Duane Reade pharmacies are significantly underproductive, filling just 850 scripts per week, compared with Walgreen's average of 1,900 scripts per week,” he said in a research report on the acquisition. “By integrating Walgreen's systems, training and culture, we expect that gap to close significantly over time.”

Duane Reade is led by Chairman and Chief Executive Officer Jon Lederer, the former Loblaw executive, who has embarked on a major campaign to make over the banner with a sleek new look, a new loyalty program and a new private-label food line. Walgreens, already considered a leader in food merchandising among drug store chains, also recently unveiled plans to expand its food offerings.

The acquisition includes all 257 Duane Reade locations, most of which are in New York City, plus two distribution centers and the headquarters. Walgreens said it would decide over time how to “harmonize” the operations of the two chains. Walgreens currently has 70 stores in the New York area.

“One thing we've learned is that it would take many years of organic growth to reach the store count that this acquisition brings us,” said Gregory D. Wasson, president and CEO, Walgreens, in a conference call with analysts discussing the deal.

Duane Reade, privately owned by Oak Hill Capital Partners, had 2009 sales of $1.8 billion, Walgreens said.