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A New Prestige Player: Walgreens to Acquire Duane Reade for $1.1B
Prestige brands, get ready. There's a new customer in town and it's a big one: Walgreen Co.
Walgreens' $1.08 billion bid for Duane Reade will give the $63 billion national drugstore chain a broad avenue of attack into the previously unreachable prestige beauty business.
On Wednesday, Walgreens said it will acquire the 257-store metro-New York chain from affiliates of Oak Hill Capital Partners. The purchase price includes the assumption of $457 million in debt. Oak Hill Capital bought Duane Reade in 2004 for about $748 million. Walgreens' shares closed Wednesday at $34.19, up 0.3 percent, or 11 cents.
The deal delivers to Walgreens a well-packaged and -executed prestige beauty concept created by Duane Reade, called Look Boutique, which could serve as the national chain's answer to CVS Pharmacy's upscale boutique, Beauty 360. Duane Reade's upscale beauty concept includes department store fragrance brands such as Lacoste, Juicy Couture, Usher, Burberry and Gwen Stefani's Harajuku Lovers. It also features niche beauty lines like Pop Beauty, Ramy, Borba, Rilastil and MD Skincare by Dr. Dennis Gross.
The transaction, subject to regulatory approval, would include all Duane Reade stores, 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 of between $120 million and $130 million in the third year after closing the transaction.
The acquisition, in terms of door count, widens Walgreens' lead in the horse race with its number-one drugstore competitor, CVS Pharmacy which, as of September, operated 7,008 units bringing its total to 7,400 locations. It also gives the Deerfield, Ill.-based drugstore group the leadership position in the metro-New York market, where competition among national chains and Duane Reade has intensified in recent years. Excluding Duane Reade, Walgreens operates about 70 stores in the metro-New York area, including 13 in Manhattan.
The acquisition gives the national chain, an immediate and leading presence in New York, the largest drugstore market in the country, said Greg Wasson, Walgreens' president and chief executive officer. It would have taken many years of organic growth to reach the store count that this acquisition brings.
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