Walgreen to Acquire Pharmacies

Walgreen (WAG), one of the largest retail pharmacies in the US, entered into an agreement with Graymark Healthcare (GRMH) to acquire the latter’s retail pharmacy business, 18 ApothecaryRx pharmacies of 5 states – Colorado, Oklahoma, Minnesota, Missouri and Illinois. The transaction is expected to close in the fourth quarter of 2010.

While financial terms of the deal were not disclosed, Graymark expects to realize total enterprise value of $35 million. Following this divestment, Graymark will focus on its sleep apnea business, which is witnessing strong growth and robust margin.

Walgreen offers pharmacy benefit management (PBM), mail service, home care and specialty pharmacy services through its Walgreen Health Services division. The company’s pharmacy sales are expected to continue to grow due to the aging population and the continued development of innovative drugs that improve the quality of life. Also, generic introductions continue to boost prescription volume. Although generics sell at a lower price, they save both patients and payors money and generally offer higher gross profit compared to branded drugs.

Walgreen, in the past, has grown through both organically and inorganically. Earlier, in April 2010, Walgreen acquired New York based Duane Reade Holdings for a total enterprise value of $1.075 billion, including debt.

Although, Walgreen operates about 7,500 stores, its presence in New York is not strong. Following the transaction, which includes 257 Duane Reade stores located in the New York City metropolitan area, Walgreen will become one of the leading players in the largest drugstore market of the US.

The company has a strong balance sheet, which bodes well for suitable acquisitions in future. During the third quarter of fiscal 2010, Walgreen witnessed disappointing same-store sales growth due to a weak economy and higher sales of flu-related products in the year-ago quarter. Moreover, the introduction of lower generics hampered sales. However, with a gradual recovery in the economy, the situation should improve.

WALGREEN CO (WAG): Free Stock Analysis Report

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