CtW argues in favor of Walgreens’ bid for Longs business

WALNUT CREEK, Calif. In the latest twist and turn of the potential acquisition of Longs Drug Stores, CtW Investment Group has sent a letter to Longs challenging its anti-trust arguments associated with Walgreens’ unsolicited bid and urging it, once again, to hold an auction for the company.

CtW Investment Group works with pension funds sponsored by unions affiliated with Change to Win, a federation of unions representing more than six million members. Many of these funds are long-term Longs shareholders.

“We are perplexed by the Longs board’s repeated refusal to recognize that there are potential acquirers, including but not limited to Walgreens, willing to offer shareholders a higher price than $71.50  per share. The board has explained its actions by pointing to the anti-trust risks entailed by a Walgreens/Longs merger, both the direct risks of the FTC blocking such a transaction, or requiring substantial divestitures, and the indirect risk of a lengthy regulatory review process that delays the deal’s closing by as much as a year,” stated CtW Investment Group in a letter sent Monday to Mary Metz, chairperson of the Governance and Nominating Committee for Longs.

“However, the board has not provided shareholders with any evidence to support these assertions, let alone that any other potential transaction that might arise to the top in an auction process would also face such regulatory risk.”

In the latest letter, CtW is urging Longs’ board to disclose its own expert analysis or acknowledge that offers potentially superior to CVS’ are available and to undertake the auction process CtW recommended in a separate letter dated Sept. 16.

Furthermore, CtW stated in the most recent letter that it has hired anti-trust counsel from the firm Doyle, Barlow and Mazard LLC, who have concluded, according to CtW, “a Walgreens/Longs merger should not give rise to significant anti-trust concerns, nor require significant divestitures.”

 As previously reported by Drug Store News, Walgreens has come forward with an unsolicited, non-binding bid to buy Longs for nearly $3 billion in cash and debt assumption, a move that aims to quash a takeover agreement Longs management had already approved with CVS.

CVS announced in mid-August that it plans to buy for $2.9 billion, including debt, Longs’ 521 retail locations in California, Hawaii, Nevada and Arizona, as well as its PBM services. On Sept. 5, the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act expired, satisfying a condition to the closing of CVS’ offer.

While Walgreens’ offer, which is subject to regulatory approvals and the completion of due diligence, represents a $3.50 per share premium over the cash purchase price to be paid to Longs shareholders under the proposed acquisition by CVS, the bid from Walgreens immediately raised the eyebrows of several industry analysts given the likely regulatory hurdles and the potential for substantial store divestitures. It is apparent that Longs management also has its share of concerns.

Longs has rebuffed—twice—Walgreens’ unsolicited bid to acquire the chain but Walgreens maintains that it will continue to move forward and has stated that it is prepared to go directly to Longs’ stockholders.