Longs pushes, CVS holds ground; Take-Two, Electronic Arts map a friendly offer

By Aaron Hochman-Zimmerman

New York, Aug. 21 - Another long, slow summer's day in deal-land did find action between Long Drug Stores Corp. and CVS Caremark Corp.

Many in the Longs camp believe CVS' offer fell short of the necessary mark, but others see a generous premium from CVS even though Longs has long since traded above the offer price.

In the gaming space, long-time deal players Take-Two Interactive Software Inc. and Electronic Arts Inc. continued to work through the negotiations of a friendly offer.

Many market watchers are expecting Take-Two to be sold for something better than $27 per share.

Still, others believe that the longer Take-Two's Grand Theft Auto 4 is on the market, the more the company devalues, despite its deep talent pool.

Meanwhile, a volatile day saw the Dow Jones Industrial Average ending higher by 12.78, or 0.11%, at 11,430.21, while the Nasdaq Composite Index gave back 8.70, or 0.36%, to finish at 2,380.38.

The S&P 500 tacked on 3.18, or 0.25%, to close at 1,277.72.

CVS comes up short for Longs?

A growing number of Longs Drug's shareholders believe that the offer of $71.50 per share from CVS would be too good of a price to miss, if the deal is completed.

The market began to take notice when the New York Post reported that one of the restless shareholders is Pershing Square's Bill Ackman.

The major objection to the offer is based on a perceived underestimation of the real estate value of Longs' stores.

"The real estate thing could be interesting," a market source said, but for the time being CVS will stick to its guns, although "they're not going to get 90%" of the shareholders to approve the tender.

Already, 18% of shareholders are opposed to the deal in its current form.

"I know what I think should happen," the source said, "CVS should just wait; and they shouldn't raise their bid."

Where Pershing Square's Ackman is concerned "the markets can remain irregular longer than you can remain solvent," he said.

"They can't withdraw their tender offer for a year and people like Ackman will just get sick of it," he said.

"He won't tender his shares, he'll sell them above the offer price," he said, but the market has a high expectation for activist investors such as Ackman. He is expected to push for more money and that is what he is doing.

"They want to see the activist in him," the source said.

Meanwhile, the offer at a 32% premium is "a very lofty offer," he said, and still Longs traded through the offer.

"It's really baffling me, I though it was such a rich valuation," he said.

Other callers may show up at Longs' door, but there are too many obstacles for the most likely candidates.

"Walgreens would have to divest so much" mostly in places like Southern California, he said, "It wouldn't make sense ... They could get anti-trust approval, but is it worth it?" he asked.

"It's amazing to me how this has been going," he added.

Shares of Longs Drug Stores (NYSE: LDG) took on $1.00, or 1.39%, to end the day at $73.10.

Shares of CVS Caremark (NYSE: CVS) crept up by $0.04, or 0.11%, to close at $37.36.

Take-Two talking to Electronic Arts

Talks between Take-Two and Electronic Arts continued where repeated tender offers have failed.

The two video game producers are working out legal terms which would allow EA to review Take-Two's books.

The talks are viewed my many as a positive step in the negotiation process.

Some in the market are expecting an offer price closer to $27.50 per share rather than the previous offer of $25.74 per share, according to a market source.

"I would say they end up striking a deal," an equity analyst said, although "I don't think it goes over $27 [per share]," the analyst said.

Admittedly, Take-Two has a deep bench of development talent, but its share price hovered near $16 before the offer, he said.

Even the value driver Grand Theft Auto 4 will taper off, he said.

Still, "I think a deal will get done and you kind of see Take-Two being more receptive to it," he said.

Throughout the process Take-Two always claimed it was open to a deal, but placed many conditions ahead of negotiations with Electronic Arts, now "you see the tide shifting there," he said.

Take-Two is now close to $1.50 under the former offer price, the analyst said; if Electronic Arts adds one more dollar to the offer price it should have a deal.

Shares of Take-Two (Nasdaq: TTWO) inched up by $0.04, or 0.16%, to finish at $24.38.

Shares of Electronic Arts (Nasdaq: ERTS) slipped lower by $0.12, or 0.25%, to close the session at $46.94.

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