Walgreen may already be the nation's biggest drugstore chain, but its $618 million purchase of Duane Reade will put it on seemingly every Manhattan street corner. The deal, announced Wednesday, will transform the retailer into one of New York City's biggest sellers of cosmetics and toothpaste without having to resort to costly real estate purchases. Walgreen, based in Deerfield, Ill., already owns 7,162 stores nationwide and reported $63 billion in sales for its fiscal year 2009. The chain, however, has a relatively small presence in the city. 'This accelerates our opportunity to gain a leading presence in the largest drugstore market in the country,' Gregory D. Wasson, Walgreen's chief executive, said in a conference call with analysts, adding that his company had studied a bid for several months. 'That would take us a long time to continue to do organically.' Walgreen plans to operate Duane Reade stores under their own name and keep its current senior management, though it will study ways to meld the two brands. Walgreen has 70 stores in New York City. The deal will bring yet another new owner for Duane Reade, which has grown from a warehouse located between the two Lower Manhattan streets that account for its name into a 257-store New York empire. Duane Reade's founding family sold the retailer to Bain Capital in 1992, which took the company public six years later. Oak Hill Capital Partners, the private equity firm, bought the retailer in 2004 for about $700 million and remained its owners until now. (An Oak Hill spokesman said in a statement on Wednesday that Duane Reade has generated a 'solid return' for the firm's investors.) But despite its broad presence in New York, Duane Reade has struggled with two problems. A big debt load has weighed on the company's finances. And New Yorkers have often regarded the stores as dark, cluttered places where cleaning products sometimes sit next to cookies. Narrow aisles sometimes make for uncomfortable shopping experiences as customers jostle into one another in a deliberate design meant to stuff as many products into stores as possible. In addition, customers often complained that Duane Reade's prices were higher than at competitors. Under its current chief executive, John A. Lederer, Duane Reade sought to repair its problems. The retailer refinanced its debt last summer and has reported improved finances: the company posted about $1.8 billion in sales for 2009, and Lederer said in an interview that it has had consistent earnings growth quarter over quarter. Duane Reade also sought to completely revamp its image, replacing its simple blue-and-red logo with a sleeker look and remodeling stores to resemble airier suburban ones. The aisles were widened, the lighting improved and new sections like the Look Boutique, a collection of cosmetics and skincare products, were added. Some stores also now have doctors on site. Duane Reade has reported that sales have improved at the newly revamped stores, including one by Penn Station and one on Water Street in Lower Manhattan, often by double digits. 'New Yorkers are always in a hurry,' Lederer said. 'It's clear they wanted cleaner stores.' He added that the sale would benefit the two companies in other ways. Walgreen would gain access to Duane Reade's new portfolio of private-label brands, while his company would be able to tap into Walgreen's extensive pharmacy services to bolster its own weaker business. Walgreen said it intended to invest about $60 million in its new acquisition over the next few years and would continue the improvement efforts. Walgreen said that it expected the deal to impair its earnings in the first year after completion, which is expected by August. However, the company said it expected to have increased earnings afterward. It expects to reap more than $120 million in cost savings beginning in the third year after the deal's completion. Shares in Walgreen rose 11 cents on Wednesday to $34.19. Walgreen was advised on the deal by the Peter J. Solomon Co. and the law firm Wachtell, Lipton, Rosen & Katz. Oak Hill Capital and Duane Reade were advised by Goldman Sachs, Bank of America's Merrill Lynch and the law firm Paul, Weiss, Rifkind, Wharton & Garrison. 