Walgreen’s Grab Bag Strategy. Drugstore Illusions
Walgreen (NYSE:WAG) is buying Drugstore.com (NASDAQ:DSCM) for $409 million all cash. Just a few days ago I was pointing out how weak Walgreen’s balance sheet was looking. i.e. too much debt maturing very quickly. Oh well what’s another $409 million.
Deep in the press release Walgreen admits the acquisition will be dilutive well into 2013. What they do not mention is that Drugstore.com has not had a profitable year as yet. What will Walgreen do to earn an attractive rate of return on $409 million?
To generate a say 7.5% return Drugstore.com needs to generate some $31 million. Drugstore.com is not even close. No comment from Walgreen about how they will breathe financial life into the acquisition. Hopefully they are looking for more than a 7.5% return.
Disclosure: “George Gutowski” writes from a “caveat emptor perspective”. I hold no positions in stocks mentioned in this post. I have no plans to initiate new positions within the next 72 hours.
- Drugstore.com, Veteran of the Dot-Com Bust, Grabbed by Walgreens in $409M Deal (xconomy.com)
- Walgreen Co. buying Drugstore.com for $409 million (marketwatch.com)
- Walgreen to spend about $429M for drugstore.com (seattletimes.nwsource.com)
- Bricks buys clicks: Walgreens acquires Drugstore.com for $409 million (zdnet.com)
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