Walgreen Challenges CVS Bid for Longs With $3 Billion Offer

By Lauren Coleman-Lochner and Ryan Flinn

Sept. 13 (Bloomberg) -- Walgreen Co., the largest U.S. pharmacy chain, offered to buy Longs Drug Stores Corp. for $3 billion, challenging CVS Caremark Corp.'s month-old agreement to acquire the California retailer.

The $75-a-share cash proposal is $3.50, or 4.9 percent, higher than CVS/Caremark's offer last month to buy Walnut Creek, California-based Longs, Walgreen said in a statement yesterday. Walgreen also said it was willing to pay the $115 million termination fee required to break up the CVS transaction.

The Walgreen bid, exactly one month after CVS disclosed its offer, puts pressure on CVS to increase its price or risk losing a chance to add drugstores in two of the fastest-growing U.S. states, Nevada and Arizona. Longs also has stores in California and Hawaii. CVS Chief Executive Officer Tom Ryan said yesterday on CNBC that the company is ``not moving'' on its price.

``I'm sure they're going to study the potential for a sweetened offer,'' said Matt Kaufler, a fund manager at Rochester, New York-based Clover Capital Management Inc., which oversees $2.8 billion including CVS shares.

CVS spokesman Michael DeAngelis in Woonsocket, Rhode Island, didn't immediately return messages seeking comment after regular business hours. Walgreen disclosed the bid almost four hours after the end of New York Stock Exchange composite trading.

Longs, which has 521 stores, jumped $2.84, or 4 percent, to $74.50 at 7:59 p.m. after the close of New York trading. CVS declined 2 cents to $37.64 in regular trading before the announcement, and Walgreen fell 60 cents to $36.07.

Investors Weigh In

The offer follows calls from investors urging Longs to seek a higher offer. Longs has closed above CVS's $71.50 bid price every day but three in New York trading since the agreement was disclosed.

Advisory Research Inc., Longs's biggest shareholder, said yesterday it wouldn't tender shares to CVS because the offer wasn't enough. That followed a similar statement from Pershing Square Capital Management LP, the hedge fund run by William Ackman. Ackman has said Longs's real estate is worth about as much as the CVS offer.

Ackman declined to comment on Walgreen's bid.

Deerfield, Illinois-based Walgreen said it is working with real estate investors Lubert-Adler Management Co. and Klaff Realty LP to ``address any potential store sales in connection with the transaction.''

Goldman, Sachs & Co. is giving Walgreen financial advice, and Weil, Gotshal and Manges LLP is serving as its legal adviser.

The chain said it proposed paying $70 for Longs in previous talks. Longs never provided financial details in response to the offer, Walgreen said.

`Long-Standing'

``Walgreens has had long-standing, sincere interest in Longs,'' Walgreen CEO Jeffrey Rein said in a letter to the Longs Board yesterday.

The latest offer requires a detailed study of Longs's financial statements by Walgreen and the real estate firms. Walgreen said it ``unquestionably'' prefers to negotiate a friendly transaction, although it is prepared to lobby shareholders directly to force an end to the CVS agreement and a merger with Walgreen.

``These are the two best buyers,'' Kaufler said. Walgreen has more stores that overlap with Longs, meaning it would probably be required to sell those locations to satisfy antitrust concerns, he said.

``CVS could be a buyer for some of them, ironically,'' Kaufler said.

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net; Ryan Flinn in San Francisco at rflinn@bloomberg.net.