Drugstore.com, Walgreens talked for a year before striking a deal

Drugstore.com rejected a pair of lower offers from Walgreens during a yearlong courtship before accepting a third proposal worth about $429 million, the Bellevue-based Internet retailer disclosed in a regulatory filing Wednesday.

Drugstore.com agreed March 23 to be bought by Walgreens, the nation's largest drugstore chain, for $3.80 a share in cash, a 111 percent premium over the stock's closing price a week earlier.

The planned purchase, which is subject to approval by drugstore.com shareholders, is expected to be final by the end of June.

Wednesday's disclosures reveal that drugstore.com, despite never turning an annual profit, was able to extract a higher price from Walgreens as the Deerfield, Ill.-based chain sought new ways to reach a growing number of online shoppers.

The courtship started a year ago when New York investment bank Sonenshine Partners met with Walgreens to discuss general business-development topics, including an online strategy. At the time, Sonenshine also had been working with drugstore.com as an adviser on its vision business.

Although it was neither a representative of drugstore.com nor under any instructions to discuss drugstore.com with Walgreens, Sonenshine mentioned that it could try to set up a meeting between the two companies, according to drugstore.com. Walgreens expressed an interest, and Sonenshine approached drugstore.com Chief Executive Dawn Lepore.

The companies held their first meeting in Chicago in mid-July, and in late November, Walgreens told drugstore.com it was considering a cash purchase of between $3.10 and $3.35 a share.

Drugstore.com rejected Walgreens' initial proposal and a subsequent cash offer of $3.55 a share, then came back in January with its own price, saying $3.80 a share would be "sufficiently attractive."

Drugstore.com said it also approached several other companies that it thought might be interested in buying it, but the board decided it probably would not be willing or able to give shareholders a better deal than Walgreens.

Founded in 1998, drugstore.com employs about 950 people, including 250 at its Bellevue headquarters. It also has a distribution center in New Jersey, call center in Nova Scotia and offices in Sacramento, Calif.

The company in February posted a fourth-quarter loss of $663,000 on sales of $124 million.

It reiterated Wednesday that Walgreens does not plan significant job reductions or office closures.

"The transaction is happening because Walgreens likes what we have built, and they have no intention of tampering with what is working," drugstore.com said in a series of written responses to employees' top questions about the deal.

Walgreens and drugstore.com "will maintain their separate branding. Over the long term, Walgreens intends to enhance its multichannel product assortment and the overall customer experience by leveraging drugstore.com's websites," it said.

Lepore, 57, who joined drugstore.com as president, CEO and chairwoman in 2004, plans to leave the company after seeing it through its transition with Walgreens.

Lepore could receive a cash severance package of $2.75 million, as well as nearly $3.5 million in accelerated vesting of stock and option awards. She owns an additional $4 million of drugstore.com stock, according to an analysis of Wednesday's filing by Equilar, an executive-compensation data firm in the San Francisco Bay Area.

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com