CtW pushes for auction of Longs Drug Stores

By Lisa Kerner

Charlotte, N.C., Sept. 16 - CtW Investment Group asked Longs Drug Stores Corp.'s governance and nominating committee to establish a special committee and conduct an auction for the company.

According to the investor, Walgreen Corp.'s recent $75-per-share offer for the company demonstrates the flawed process through which Longs' board approved the offer from CVS Caremark Corp.

"Given that Pershing Square Capital Management has identified additional parties interested in purchasing Longs, in our view the Longs board can only maximize shareholder value by giving all interested parties an opportunity to conduct due diligence and present offers for review by a special committee comprised entirely of independent directors," CtW said in a Sept. 16 letter to Dr. Mary S. Metz, chair of the governance and nominating committee.

The proposal from Walgreen, a Deerfield, Ill., drugstore operator, is valued at approximately $3 billion, including the assumption of debt, and is subject to regulatory approvals and due diligence, it was previously reported.

Longs, a Walnut Creek, Calif., drugstore chain, agreed to be acquired by CVS Caremark in August for $2.9 billion including debt.

CVS Caremark extended its tender offer for Longs to midnight ET on Oct. 15 on news of Walgreen's offer.

Prior to the Walgreen offer, CtW said it was disturbed by Longs' failure to reveal the value of its real estate portfolio as part of an undisclosed agreement with CVS Caremark.

CVS Caremark has conservatively valued Longs' buildings and land together at more than $1 billion. CtW said it believes the figure undervalues the real estate by 18% to 26%.

CtW said Longs' board has already made concessions in the negotiations with CVS Caremark, including a low-end price, a termination fee that exceeds the rule of thumb for transactions under Delaware law and limitations on seeking superior offers.

A fair value for Longs would be between $76.62 and $78.81 per share, said CtW.

Following the acquisition, CVS Caremark, based in Woonsocket, R.I., will fill or manage more than 1.2 billion prescriptions per year and will operate about 6,800 drugstores in 41 states and the District of Columbia.

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