Walgreens buys Amazon-backed Drugstore.com

Walgreen Co. announced this morning that it’s buying Drugstore.com for about $409 million. Awesome news for the former dot-com darling, as Walgreen’s purchase price represents a 113% premium over Drugstore.com’s closing price yesterday.

And it’s really great news for holders of Drugstore.com stock (did you even know that exists?!), which surged 117% today after the announcement.

But it’s not such an awesome reminder for Amazon, which lost big on its early stake in Drugstore.com. As our own Paul LaMonica notes via Twitter, Amazon’s initial investment was worth $500 million, and it owned nearly half of Drugstore.com. As of today, Amazon’s stake has been diluted to 12%…and it’s worth only $50 million.

Oopsie.

But let’s travel back in time, shall we? To a time when the tech field was feeling bubbly … when valuations were soaring sky-high … Erm, well, anyway. Come back to the ’90s with me, when I was about 11 and experimenting with the flannel-shirt look.

Drugstore.com was a hot commodity when it launched in February 1999, smack in the middle of the dot-com boom. The story of its funding reads like one of today’s startups: It received early financial backing from Kleiner Perkins Caufield & Byers (now heavily invested in Twitter and others), and Amazon acquired a chunk of the company.

As a CNET article noted back then, Amazon and Drugstore.com did lots of cute things for each other as a result of the pairing: Amazon included a link to Drugstore.com from its home page, and Drugstore.com gave a free first aid kit to customers who came to its site via Amazon.

Everything was sunshine and sprinkles, and 11 months later Amazon plunked another $30 million into Drugstore.com (bringing its stake to almost 28% at the time).

Just a month later, in March 2000, the tech-heavy Nasdaq dropped 9% in less than a week; the tech bubble had officially burst. “Growth over profits” didn’t seem like a feasible biz strategy anymore, nor did completely ignoring P/E ratios.

Like many other dot-coms, Drugstore.com never reached its ultra-hotshot potential. The company has never posted a full-year profit, and its shares have fallen 53% in the past 12 months.

Maybe Walgreen can be the site’s knight in shining armor. The acquisition is expected to close in June, and Drugstore.com’s board unanimously backed the deal. Smart move, guys. -Julianne

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