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."

2Comments
avatar
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
avatar
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...
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123
123 rated 1
262
262 rated 2
480
480 rated 3
651
651 rated 4
649
649 rated 5
629
629 rated 6
616
616 rated 7
496
496 rated 8
346
346 rated 9
111
111 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
EXCEXELON CORPORATION9
TAT&T Inc9
VZVERIZON COMMUNICATIONS8
CTLCENTURYLINK Inc8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.