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Walgreen launches surprise Longs bid

The drugstore chain hopes its $3-billion offer wrests its target away from a deal with CVS Caremark.

September 13, 2008|Michael Lev | Chicago Tribune

Drugstore giant Walgreen Co. launched a surprise, $3-billion bid Friday night for Longs Drug Stores Corp., hoping a $75-per-share offer is enough to take the West Coast chain away from CVS Caremark Corp.

Deerfield, Ill.-based Walgreen said in a statement that buying Longs would strengthen its presence in fast-growing markets and broaden its exposure in the "highly attractive" Hawaii market.

"We believe the combination of Walgreens and Longs is a highly compelling transaction that is superior to the pending transaction with CVS Caremark, accelerates Walgreen's expansion into high-growth markets and delivers meaningful cost synergies," Walgreen Chief Executive Jeffrey Rein said in a statement.

Walgreen's offer, which includes assumption of debt, is $3.50 a share more than that of CVS, which may be enough of a premium to complicate its rival's purchase plan.

The aggressive move by Walgreen is out of character for a company whose formula for success throughout the years was based mainly on opening its own stores. But faced with tightening profit margins, Rein declared early this year at the annual meeting that he was willing to try something new.

"There are no sacred cows," he said.

Walgreen may have seen an opening to bid for Longs after activist shareholder William Ackman, whose Pershing Square Capital Management holds a stake in the Walnut Creek, Calif.-based chain, raised the question Thursday whether the bidding process for Longs led to the best price.

Walgreen and CVS are the nation's biggest drugstore chains, each with more than 6,000 locations across the country. Longs operates more than 490 stores in California, Hawaii and Nevada.

CVS and Walgreen see Longs as a way to quickly beef up their West Coast presence. Walgreen had looked at making a $70-a-share bid but was beaten out by Rhode Island-based CVS, which struck its deal for Longs in August.

In a letter to Longs' board Friday, Rein noted Walgreen's previous interest but said it never was provided with due-diligence materials. He asked to negotiate directly with Longs but said Walgreen was prepared to go directly to shareholders.


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