Drugstore.com shares explode on Walgreen buyout

Walgreen is acquiring one of the largest online retailers for $429 million in cash. With video updates.

By Kim Peterson Mar 24, 2011 2:54PM
Today is a good day to be a Drugstore.com (DSCM) shareholder. The stock has soared 112% to $3.80 on news that the online drugstore would be acquired by Walgreen (WAG).

Walgreen is spending $429 million in cash on the deal -- a 112% premium to drugstore.com's close on Wednesday. Since it's getting Drugstore.com's $20 million cash hoard, the buyout price is essentially $409 million. Walgreen's share price rose less than 1% to $40.09 in afternoon trading.

Why did Walgreen want Drugstore.com? First and foremost, Walgreen has a terrible online presence. Its website is unattractive and sluggish (check out its "clothing" link). Compare Walgreen's first-aid site with Drugstore.com's first-aid site, and you'll see why Walgreen needed to make this deal.

Check out this video of Drugstore.com's chief executive discussing her business:
Walgreen says it will get immediate access to more than 3 million of Drugstore.com's online customers through the main site as well as through Beauty.com, SkinStore.com and VisionDirect.com. It will keep the brand names on those sites.

The deal will likely hurt Walgreen's fourth-quarter earnings by about 3 cents a share. Earnings for the next fiscal year could see a dilutive hit of 3 to 4 cents a share, the company said.

Drugstore.com has never made a full-year profit, The Wall Street Journal reported, and hauled in $456 million in sales last year. It's the eighth-largest online retailer in the U.S.

Was the purchase price too high? The Motley Fool thinks so. "The $409 million transaction is going to turn heads," writes Rick Munarriz. "You have to go back nearly 11 years -- to the sudsier side of the dot-com bubble -- to find the last time that drugstore.com was trading in the double digits."

May be a great day to be a drug store. com holder but not so sure it is great to be a walgreens holder. let me get this straight, they paid almost half a billion dollars for a company that has not posted a yearly profit? am I missing something here? Sales are nice but PROFIT is what pays the bills. Is this the first of another run on the" they are online, so they MUST be great" craze? I would have some serious questions for the board of directors if I held walgreen stock.
Jul 1, 2011 6:06PM
great day for walgreens - bad day for consumers.  i just got hit with a $9.00 sales tax charge for the first time at drugstore.com.  that makes it not worth it to shop there anymore - over to soap.com and other less costly options...
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