Walgreen to acquire USA Drug, giving company 30 more stores in Tulsa area
BY KYLE ARNOLD World Staff Writer
Friday, July 06, 2012
7/06/12 at 6:51 AM
Walgreen Co. is set for a major expansion in the Tulsa area after agreeing to acquire USA Drug, the parent company of May's Drug, Med-X Drug and Drug Warehouse.
Walgreen announced the $438 million deal Thursday, giving the company at least 30 more stores in metro Tulsa, where national competitor CVS has been increasing its presence during the past three years.
"The acquisition expands our business in an important region of the country," Walgreen president and CEO Greg Wasson said in a statement.
Officials of Deerborn, Ill.-based Walgreen said they have not decided how the company will incorporate the USA Drug brands under the Walgreen umbrella; it will continue to operate the stores under their current names for now.
Until recently, Walgreen and USA Drug were the major chain pharmacies operating in the Tulsa area. But Woonsocket, R.I.-based CVS Caremark Corp. opened a Tulsa store in the fall of 2009 and has followed with eight more stores in the region since then.
USA Drug, a privately held company based in Little Rock, has about 144 stores in the Tulsa region in addition to locations in Arkansas, Kansas, Missouri, Mississippi and other states.
"We chose to sell our business to Walgreens not only because it is the premier drugstore company in our industry, but also because Walgreens will continue to provide our customers with the service and products they have come to expect," said USA Drug chairman and CEO Stephen LaFrance.
The deal is set to close on Sept. 1.
USA Drug bought May's and Drug Warehouse from CEO Gerald Heller in 2004, around the same time it purchased Med-X and Drug Mart from CEO Milt Wolff. Med-X was founded in 1967, while May's opened in 1937.
The Arkansas drug chain also owns the Super D Drug brand, which does not operate in the Tulsa area.
USA Drug says it recorded $825 million in sales last year, compared to Walgreen's $72 billion in revenue.
Walgreen is the nation's largest drugstore chain, with 7,907 locations in all 50 states, the District of Columbia and Puerto Rico.
Walgreen also said Thursday that its sales fell once again in June, as a split with pharmacy benefits manager Express Scripts Holding Co. continued to hurt business.
The USA Drug purchase is much smaller than the $6.7 billion in cash and stock that Walgreen said last month it will spend for a stake in European health and beauty retailer Alliance Boots, the largest drugstore chain in the United Kingdom. Walgreen also has an option to buy the rest of the company in about three years in a deal valued at around $9.5 billion.
That USA Drug deal also may give Walgreen some additional leverage in dealing with Express Scripts, the largest pharmacy benefits manager or PBM, said analyst Jeff Jonas, who covers Walgreen for Gabelli & Co. He noted that if Walgreen establishes a dominant position in a particular market, Express Scripts may feel more pressure to include Walgreen in its network.
PBMs run prescription drug plans for employers, government agencies and other clients. Walgreen stopped filling prescriptions for Express Scripts at the end of last year after the two companies failed to agree on a new contract.
The drugstore chain's sales have fallen for the past several months, as it predicted they would, and Walgreen could be in for another revenue hit.
St. Louis-based Express Scripts closed its acquisition of another PBM, Medco Health Solutions, in April. Analysts say the Medco business also may drop Walgreen. Both Express Scripts and Walgreen representatives have declined to comment on that agreement.
In June, Walgreen's revenue from stores open at least a year sank 10 percent. That was a deeper slide than the 8.2 percent drop expected by analysts, according to Thomson Reuters.
Pharmacy revenue from stores open at least a year tumbled 15 percent due in part to the introduction of some generic drugs, which are cheaper than brand-name alternatives and tend to depress pharmacy revenue but improve profitability.
The Express Scripts split also hurt Walgreen. It said prescriptions filled for Express Scripts comprised 12.6 percent of its total in June 2011.
Walgreen has reported revenue declines for the past several months, and Jonas expects this to continue for the rest of the year due to comparisons with 2011 figures that include Express Scripts business.
Shares of Walgreen slipped below $30 after it announced the Alliance Boots deal last month and hit a 52-week low of $28.53 before rebounding a bit.
The shares rose 26 cents to close at $29.87 Thursday.
The Associated Press contributed to this story.
Original Print Headline: Walgreen to grow
Kyle Arnold 918-581-8380
People walk from a USA Drug store in North Little Rock, Ark., Thursday, July 5, 2012. Walgreen Co., said Thursday it will spend about $438 million to buy a 144-store chain focused on the mid-South based in Little Rock, Ark. DANNY JOHNSTON/AP Photo