Longs refuses Walgreens buyout

October 13, 2008

Longs Drugs has turned down an unsolicited purchase offer of $3 billion from Walgreens and plans to move forward with its sale to CVS Caremark.

Key Points

Longs Drugs declined an unsolicited $3 billion purchase offer from Walgreens to purchase Longs. Instead, the California-based chain of 521 stores plans to continue to move forward with an agreement to sell to CVS Caremark. On Sept. 12, Walgreens announced that it had sent Longs an unsolicited nonbinding expression of interest, offering $71.50 a share, which was about $3.50 per share more than the CVS offer. Before rejecting the Walgreens offer, the Longs board of directors determined that Walgreens did not propose to accept regulatory risks and assumed limited antitrust risk.

In a recently-released letter, Walgreens again sought to persuade the Longs Board of Directors to reconsider negotiations. "Our proposal is compelling - it would deliver superior value to Longs stockholders relative to the CVS transaction and can be consummated without undue delay. We again request that we be given an opportunity to conduct customary due diligence pursuant to the terms of your agreement with CVS as soon as possible," the letter said.

"Although we would unquestionably prefer to work directly with you to complete a negotiated transaction, we are prepared to take our transaction directly to your stockholders," the letter said.

CVS chief executive Tom Ryan told Drug Topics in September that the Longs name will disappear by the end of 2009 everywhere but in Hawaii. CVS will retain the Longs brand there, where it is seen as a homegrown chain.

"After consulting with our outside counsel, we estimate that the operating profit of the stores at risk of divestiture could easily exceed this number by a substantial margin, assuming a transaction is approvable," Longs stated, adding that after a Longs-Walgreens transaction, the combined company would operate more than twice as many pharmacy counters in Northern California as Rite Aid, which would be the nearest remaining competitor.

Founded in 1938, Longs eventually grew into a chain of hundreds of stores operating up and down the West Coast, as well as in Arizona, Colorado, and Hawaii. In fiscal 2008, Longs recorded sales of nearly $5.3 billion.