Longs Drug Stores Corp. (NYSE: LDG) was a stock that we featured about a month ago after billionaire investor Bill Ackman built up a timely stake through his Pershing Square Capital Management. The activist investor purchased a sizable stake shortly before CVS announced that it intended to acquire the firm sending shares sharply higher. Now, it appears that another drug store with deep pockets is interested in acquiring the company...
Walgreen Co. announced a rival bid over the weekend that came in at $75 per share, compared to CVS' offer of just $71.50 per share. Investors pushed shares as high as $76 per share today as hopes they hoped CVS would increase its own bid for the company. However, the Walgreen's deal could be mired in problems, according to some analysts. Most notably, federal antitrust regulators could get involved as Walgreen's stores are very close to Long's stores in several key markets in California.
That same real estate is likely what attracted many of these acquisition offers. In fact, Bill Ackman likely purchased his stake with the idea of selling the company's owned real estate and leasing it back to generate value. CVS' own estimates also show the substantial value held in the real estate. And finally, several shareholders have already balked at CVS' offer because they believe it underestimates this real estate.
So, what will happen from here? Well, shareholders are likely to continue their speculation and keep Long's shares above $76. A higher offer from CVS is about 50% likely while an eventual acquisition by CVS at a smaller $73 or so premium makes up a substantial additional possibility. However, it is likely that Walgreen's bid will fail due to regulatory concerns unless they promise to actually sell off the properties in these key areas and divest them completely...
Related CompaniesCVS Caremark Corporation (CVS)Walgreen Company (WAG)Rite Aid Corporation (RAD)PetMed Express, Inc. (PETS)