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National drug-store chain Walgreen (WAG: 33.6925, -0.3875, -1.14%) said Wednesday it would buy New York City-based chain Duane Reade for $1.1 billion, giving Walgreen a large presence in the lucrative New York market. Duane Reade, which has 257 stores throughout New York City, is owned by private equity firm Oak Hill Capital Partners. The chain had unaudited sales of $1.87 billion last year, and has the highest sales per square foot in the nation, according to Walgreen.
“Duane Reade is a compelling strategic acquisition that will immediately provide Walgreen with a leading position in the largest drugstore market in the U.S.,” said Walgreen's president and CEO, Greg Wasson. Duane Reade, which is named after the Manhattan cross streets where the first store was located, is a ubiquitous institution in New York, found on nearly every major block in Manhattan and throughout the outer borough
But its massive expansion in recent years has saddled Duane Reade and its private equity firm with a heavy debt load. Walgreen, which operates more than 7,000 stores nationwide, said it is expects to see synergies of $120 million to $130 million after the third year of the transaction closing. Walgreen said the Duane Reade name and identity would remain but over time a decision would be made on how to “harmonize” the Duane Reade and Walgreen brands. Walgreen said it expects to retain nearly all of Duane Reade’s employees and a large proportion of the company’s senior management team.
