In a release, Greg Wasson, president and CEO of Deerfield, IL-based Walgreens, says the Duane Reade buy represents "a compelling strategic acquisition that will immediately provide Walgreens with a leading position in the largest drugstore market in the US. 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."

A Walgreens management presentation Wednesday morning notes that the acquisition provides "a significant base for further expansion in the Northeast." Duane Reade, founded in 1960 and named for Duane and Reade streets in Lower Manhattan, already boasts "significant market share in the largest drugstore market in the country," according to the Walgreens presentation. Duane Reade had unaudited net sales of $1.8 billion for the latest 12-month period ending Dec. 26, 2009, and has the highest sales per square foot in the retail drugstore industry nationwide, according to Walgreens.

The Duane Reade nameplate, among the more ubiquitous across the city's retail landscape, will not disappear following the transaction's closing, which is expected to occur by late August. "Duane Reade will continue to operate under its brand name after the transaction closes," according to a release from Walgreens.

The release states that a "decision will be made over time" on how best to harmonize the Walgreens and Duane Reade brands; there are currently 70 Walgreens locations throughout the New York metro area. Although Walgreens says it expects to retain Duane Reade employees and most of the senior management team following the acquisition, "consolidation of core functions at the corporate offices will occur" over time.

A report from Bank of America Merrill Lynch Wednesday gave a "buy" recommendation to Walgreens stock following news of the Duane Reade acquisition. The report cites a cost structure "that should dramatically improve over the next three years on slowing store openings and cost cutting, with cash flow benefits from working capital reduction. Duane Reade adds $1.8 billion in revenues in a synergistic fashion" and will not strain Walgreens' $3 billion in cash reserves.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.