Jefferies Comments On Walgreens Purchase Of Drugstore.com

According to Jefferies, Walgreen's WAG purchase of drugstore.com, while small on the relative scale, appears positive in its view as it strengthens and broadens WAG's core area of expertise and provides a foray into the fast-growing online retail channel. Jefferies reported that Walgreen announced the purchase of online retailer drugstore.com, inc. (DSCM, $1.79, NC) in an all-cash transaction valued at $409mm ($429mm equity value). “The transaction is expected to close in June and looks to be dilutive to EPS in this year's 4Q by $0.03 due to one-time costs associated with the transaction. Further dilution of $0.03-$0.04 in FY12 and $0.01-$0.02 in FY13 is driven by Walgreens' intent to reinvest in the business, with ~$0.01 of the annual EPS dilution from additional amortization expense associated with purchase accounting. The transaction will also add approx. $80mm in cash flow related to drugstore.com's NOLs and certain other tax benefits. The transaction represents approximately 0.9x drugstore.com's FY10 LTM revenue of $457mm and 25x FY10 LTM Ongoing Adj. EBITDA of $16mm.” Walgreen closed yesterday at $39.83.