Longs shares jump after higher offer from Walgreen

MDNG PediatricsSeptember 2008
Volume 8
Issue 9


Longs shares jump after higher offer from Walgreen

Last Updated: 2008-09-15 12:00:05 -0400 (Reuters Health)

CHICAGO (Reuters) - Longs Drug Stores Corp shares rose 6 percent on Monday, their first day of trading since the company received a $75-per-share takeover bid from Walgreen Co that trumped an earlier offer from CVS Caremark Corp.

The Walgreen bid, announced late on Friday, has raised investors' hopes that CVS would have to sweeten its offer of $71.50 per share, which Longs is backing.

At this point, CVS plans to "stand firm" on its offer, which "represents a full and fair price," Chief Executive Tom Ryan said in a statement on Sunday.

Still, analysts expect CVS to counter with a higher offer in order to close the deal.

"At a minimum, if Walgreens loses out to CVS Caremark, the process will have been delayed and become more expensive for its rival," William Blair & Co analyst Mark Miller said in a research note. He has an "outperform" rating on Walgreen.

Compared with Walgreen, CVS has a smaller presence in California, where Longs has many stores, and therefore has more to gain from buying the company, said Wachovia analyst Matt Perry, who has an "outperform" rating on CVS.

"Thus, we would not be surprised to see a higher offer from CVS," Perry said in a research note. "Also, it's important to remember that CVS raised its offer for Caremark meaningfully after Express Scripts made a hostile bid."

CVS sparred for months with Express Scripts over Caremark and ultimately bought the pharmacy benefits manager in March 2007.

A CVS spokeswoman was not immediately available for comment.

Some investors have questioned whether the CVS offer fully values Longs' real estate holdings.

Miller said the real estate "may be worth more than we and others had previously realized." The value of those assets could drive the acquisition price higher than would normally be expected, he said.

Longs, which operates drug stores mainly on the West Coast and in Hawaii, said on Sunday that for now it still recommends shareholders accept the CVS offer, which came a month before Walgreen stepped in.

Walgreen, whose bid is worth $3 billion including debt, said on Friday that it was prepared to pay the $115 million termination fee if Longs went with its offer instead of CVS.

Longs shares were up $4.29 at $75.95 in morning trading. Walgreen fell $1.29, or 3.6 percent, to $34.78, while CVS declined 76 cents, or 2 percent, to $36.88.

(Reporting by Jessica Wohl; Editing by Lisa Von Ahn)

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