Duane Reade's stock closed Monday at $15.22 but had traded in the mid-$18 range as recently as early September. The drugstore chain's shares have never recovered from the battering they received following a second-quarter 2002 earnings warning, prior to which they were fetching more than $30 each.
Buying out the publicly held stock will cost $415 million, with the remainder of the overall price tag covering assumed debt.
Robert M. Bass-founded Oak Hill will provide the buyout's equity financing while the debt portion is being arranged by Banc of America Securities. As is customary in leveraged buyouts, Duane Reade's upper management tier, including Chief Executive Anthony Cuti, will own an equity slice in the reorganized company."We are confident that this agreement delivers excellent value to our stockholders while allowing us to effectively confront near-term industry challenges by affording us a degree of flexibility that we would not have as a public company," Cuti said in a statement. "We believe the partnership with Oak Hill will provide an opportunity to investigate new avenues to improve the business, while maintaining our leadership position in the metro New York market." Cuti said customers, employees and business associates should expect a "seamless transaction." The buyout was approved by independent members of Duane Reade's board with Bear Stearns advising. The deal is still contingent on stockholder and regulatory approval and the receipt of financing.