Walgreens acquires Duane Reed for $1.1 billion

Walgreens, the largest US drugstore chain, is acquiring New York retailer Duane Reade for $1.1 billion, it has been announced.  The purchase gives Deerfield, Illinois-based Walgreens a chain with the highest sales per square foot in the US drugstore business, while also strengthening its position in the north-eastern region that is the stronghold of its rival CVS. Walgreens currently has a relatively small presence in the New York City area, with only about 70 stores, 13 of them in Manhattan. By comparison, Duane Reed operates 257 drugstores in the same area.  Under the terms of the deal, Walgreens will also acquire Duane ReadeÔÇÖs corporate offices and two distribution centers.  "Duane Reade is a compelling strategic acquisition that will immediately provide Walgreens with a leading position in the largest drugstore market in the US," 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."  He went on to say: "By combining the strengths of our two companies, we can improve our position as the most convenient provider of consumer goods and services, and pharmacy, health and wellness services in the country."  Duane Reade chairman and CEO John A. Lederer commented: "We are very pleased that this national leader has recognized the successful transformation underway at Duane Reade, which is built upon a 50-year history of serving the needs of New Yorkers and has been supported by our shareholders, including Oak Hill Capital Partners.  "We will continue to be the drugstore New Yorkers turn to, just as Walgreens has been a trusted community pharmacy in other markets for more than 100 years."  Duane Reed is currently owned by affiliates of Oak Hill Capital Partners, who bought the company for about $680 million and $284 million in debt in 2004.  Walgreens has said it 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, though it did say that over time, consolidation of core functions at the corporate offices would occur.  The company plans to continue operating Duane Reade stores under their own name. It also intends to make investments of around $60 million in its new acquisition over the next few years, and has projected cost savings of more than $120 million beginning in the third year after the dealÔÇÖs completion.  Walgreens had fiscal 2009 sales of $63 billion. The company operates in all 50 states, the District of Columbia and Puerto Rico.