Walgreens vs. CVS: A Drug Store War Looms for Longs

(MoneyWatch)  CVS Caremark thought it had Longs Drug Stores in the bag after announcing a $2.61 billion merger agreement Aug. 12. But Longs' two biggest institutional owners pushed for a better offer, and on Friday they got one: Walgreens offered $3 billion for the West Coast chain.

Walgreens' unsolicited cash bid for $75 per Longs share may please Pershing Square Capital Management and Advisory Research Inc., which said last week they wouldn't tender their shares to CVS' $71.50 offer. But Longs' management recommended this morning that its shareholders accept the CVS bid, according to Gillian Wee at Bloomberg.
Walgreen saw an opening when Longs disclosed last week that it hadn't fully appraised its real estate holdings. Some critics of the deal claimed the $1 billion value CVS stated was significantly low, according to Amy Merrick and David Armstrong in the Wall Street Journal.
How do the competing deals stack up strategically?

The Target: Longs, based in Walnut Creek, Calif., operates 521 drugstores in California, Hawaii, Nevada, and Arizona, plus a prescription benefits management unit, RxAmerica, that manages prescription benefits for 8 million people and 450,000 Medicare beneficiaries.

The Suitor: CVS, the second-largest drug chain in the United States with 6,300 stores in 40 states, acquired prescription service Caremark in March 2007 and also operates 500 MinuteClinics in 25 states. Based in Woonsocket, R.I., and strong on the East Coast, it's been involved in several other takeover attempts, including the breakup of Albertsons/Sav-On Drugs between CVS, Supervalu and Cerberus Capital Management, and the acquisition of Eckerd Drugs by CVS and Jean Coutu Group.
The Latecomer: Deerfield, Ill.-based Walgreens has 6,443 stores in every state but Alaska, according to Drug Store News' Jim Frederick. It told investors in July it would dial back its breakneck pace of new store openings; Walgreens Health Initiatives, its own PBM, is new and fairly small. "We're not out there searching to buy a PBM," Walgreens CEO Jeffrey Rein told an investor conference Sept. 4. Walgreens has more stores in California than CVS, but just opened its first store in Hawaii. Still, anti-trust concerns will loom larger over this offer than CVS'.

The Takeaway: Drug Store News called Longs "the richest regional prize left in U.S. pharmacy retailing." Stay tuned to see whether Walgreens or CVS -- or someone else -- will get to take it home.