Walgreen Co. will acquire New York City-based drugstore chain Duane Reade for $1.1 billion in cash. As anyone who has spent much time in the city knows, Duane Reade is, by far, its most dominant drugstore chain. But its ambition never extended much past the confines of the five boroughs. The move makes sense for Walgreen, but will likely transform many New York City storefronts in time.
This marks a nostalgic day for New Yorkers who have come to love (and sometimes hate) one of the most plentiful stores in the city. Having lived in Manhattan for six years, like most residents, Duane Reade played a pretty prominent role in my life. It is really the only drugstore in most areas. Once in a while you come across a Rite Aid, CVS or Walgreens, but Duane Reade is king. You generally can't walk more than a few blocks without encountering one.
As far as a business decision, it seems pretty obvious why Walgreen would want to complete this acquisition. It suddenly has the New York City drugstore market cornered. And that's a pretty huge population. It had 70 stores in the city. Now it will have 327. While the specific terms of the deal would have to be examined to know if it was a bargain for Walgreen, there's no doubt that it makes strategic sense given the potential synergies the horizontal acquisition should provide.
So does this mean the end of Duane Reade? Not yet, according to the press release:
Duane Reade will continue to operate under its brand name after the transaction closes. With Walgreens currently operating 70 stores in the New York City metropolitan area, decisions will be made over time as to the best, most effective way to harmonize the Walgreens and Duane Reade brands. 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.
In other words, for the time being, you'll still see Duane Reade stores. But I would be shocked if this didn't change over time. In particular, the generic products would almost certainly be produced with Walgreen's name, because there's no point for the same firm to produce the same product with two names for different stores. The store names will likely change in time too, because Walgreen will want that brand recognition for all of its locations. Some Duane Reade management will almost certainly be eliminated, as with virtually all acquisitions.
So collect those Duane Reade products while you can New Yorkers, because one day soon they may be collector's items.
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