Walgreens Expands Its Online Presence with Drugstore.com Acquisition

By Kate H. Gamble, Senior Editor

On March 24, Walgreens gave its online strategy a shot in the arm by acquiring online retailer drugstore.com for approximately $409 million in cash. Under the terms of the agreement, drugstore.com will receive $3.80 for each share, which is roughly 102% more than its 30-day average closing stock price.

“Our acquisition of drugstore.com significantly accelerates our online strategy to leverage the best community store network in America by becoming the most convenient choice for health and daily living needs whether customers shop online or in our stores,” said Walgreens President and CEO Greg Wasson. Through the acquisition, the company will gain immediate access to more than 3 million online customers, and will add approximately 60,000 products to its online offering, he added.

Completion of the merger is subject to conditions, including satisfaction of regulatory requirements and approval by drugstore.com’s stockholders. Walgreens anticipates the acquisition will close by the end of June 2011.

Founded in 1998, drugstore.com totaled more than $456 million in revenue in 2010 and was ranked the eighth-largest online retailer in the United States by Internet Retailer. Walgreens will maintain drugstore.com’s corporate offices in Bellevue, Washington, after the transaction is completed, along with its call centers and distribution hubs.

Both companies said they stand to benefit significantly from the merger.

For Drugstore.com, the agreement grants access to a larger company with deeper financial, marketing, supply chain, and merchandising resources, according to CEO Dawn Lepore. “Our growth strategies are perfectly aligned, and Walgreens will be able to accelerate and expand the investments necessary to achieve our vision and growth opportunities,” she said.

For Walgreens, which has been aggressively expanding its online retailing and mobile commerce business base, the acquisition of Drugstore.com and its other brands—which include Beauty.com, Skinstore.com, and VisionDirect.com—will help the company become a more diversified multichannel retailer of health and beauty products, said Sona Chawla, the company’s senior vice present of e-commerce.

The acquisition comes two weeks after Walgreens announced it was selling its pharmacy benefits management business to Catalyst Health Solutions for $525 million, and less than a year after the company introduced several mobile enhancements to better serve its customers, including an iPhone application and a mobile site that offers Prescription Text Alerts.