Walgreen Co. (WAG) Moves to Acquire Major Online Parallel Drugstore.com

Mar. 25, 2011 5:46 PM ETWBA
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Walgreens, walgreens.com – the company whose name has become synonymous with the word drugstore and did some $67B in sales last year via its vast network of locations, announced a definitive merger agreement with Drugstore.com, Inc. (DSCM) today, whereby WAG will acquire DSCM for some $409M.

President and CEO of WAG, Greg Wasson, called the drugstore.com acquisition a major victory in the campaign to create America’s number one network of friendly community-centric health and daily living needs stores, adding some 60k products and 3M loyal online customers to an already bountiful online offering.

Wasson underscored the importance of the Company’s web presence and web market as a whole, explaining that as online business continues to take additional territory from the traditional channels, the online footprint will organically grow the consumer space and the brand itself.

Firmly established among savvy consumers as an online provider in multiple channels parallel to WAG’s own growth vectors, DSCM has a solid portfolio of strong portals like Beauty.com™, SkinStore.com™ and VisionDirect.com™ and of course drugstore.com™.

Chairman and CEO of DSCM, Dawn Lepore, called the acquisition an ideal fit for all constituencies, as DSCM will benefit from the scope and range of WAG’s infrastructure, while WAG opens up a sizeable new front in its online campaign, readily appointed with a legion of repeat customers.

President of E-commerce at WAG, Sona Chawla, was practically salivating at the thought of the new opportunities this acquisition opens up for the Company, which has grown its online footprint substantially over the past two years. Chawla anticipates that the resulting team and web presence will supercharge the already incredibly successful WAG business model.

Let’s take a closer look at the details of the merger and the entire resulting landscape, starting with DSCM’s baseline:

• DSCM closed out 2010 with $456M in sales, was ranked eighth-largest online retailer in the US by Internet Retailer magazine, employee base of approximately 1k
• WAG will acquire all websites operated by DSCM as part of the deal, funding the acquisition with existing cash, in accordance with established capital allocation objectives designed to facilitate stable growth
• DSCM will maintain separate branding of its websites post-transaction allowing WAG to facilitate a diverse and attractive array of products while ensuring high-value customer experiences
• DSCM shareholders will get $3.80 in cash per share (total equity value $429M), a handsome 102 percent premium over the 30-day average close and 113 percent premium over yesterday’s close
• DSCM board of directors unanimously approved the merger and recommended the merger to shareholders; approval of the transaction by DSCM shareholders appears imminent and WAG expects to close by late June 2011
• WAG anticipates one time transaction costs translating into fiscal 2011 EPD dilution of 3 cents per share; projected investment will produce similar dilution of 3-4 cents in 2012 and 1-2 cents in 2013; 1 cent of projected annual dilution per share being attributable to incremental amortization based on Purchase Accounting assumptions
• WAG is projecting an $80M cash flow benefit via assumption of DSCM’s net operating losses and other tax benefits

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