CVS: Probe of rival Longs’ bid is ‘highly unusual’

WOONSOCKET – Although the Federal Trade Commission’s interest in rival drugstore giant Walgreen Co.’s bid for the Longs Drug Stores Corp. is “not surprising,” the agency’s decision to launch a probe at this early date is still “highly unusual, CVS Caremark Corp. executives said.
Illinois-based Walgreen Co. – operator of the Walgreens pharmacy and Walgreens Health Services – submitted its $75-per-share non-binding “expression of interest” to Longs Drug Stores on Sept. 12, a month after CVS submitted a fully funded offer to pay $71.50 per share, and four days after the CVS bid had cleared federal anti-trust hurdles with the expiration of the Hart-Scott-Rodino waiting period. (READ MORE) Possible anti-trust issues have been cited by the California-based chain as one of several reasons for rejecting the Walgreen offer.
The FTC probe was announced yesterday by the Longs Drug Store chain. Federal regulators are seeking to determine whether a Longs-Walgreen combination would “substantially lessen competition” at retail pharmacies in parts of California, Nevada and Hawaii, Longs said, according to a Bloomberg News report.

“The opening of an FTC investigation into the anti-competitive aspects of Walgreens’ proposed acquisition of Longs – coupled with such a burdensome request – is highly unusual at this stage, since no Hart-Scott-Rodino [anti-trust] filing has yet been made,” the CVS statement said.
“The related information request is as extensive as a Hart-Scott-Rodino ‘Second Request’ and seeks information on 23 different geographic markets,” the company added.

That the FTC would be interested in the transaction, however, “is not surprising, since Walgreens has the second largest number of pharmacy counters in Northern California (Longs has the most) and has announced plans to aggressively enter Hawaii (where Longs is by far the largest and strongest pharmacy operator),” the Woonsocket-based drugstore chain said.
“CVS believes this development underscores that a Walgreens transaction would entail significant antitrust-related completion risk, and, at a minimum, would entail a regulatory review lasting well into 2009,” the company said.
“Significantly, Walgreens previously terminated negotiations with Longs over antitrust concerns and has not offered to assume that risk for Longs shareholders,” CVS continued. “In addition, Walgreens’ non-binding expression of interest is subject to completion of due diligence and lacks committed financing at a highly uncertain time in the economy and the financial markets.
“In contrast,” the company said, “the CVS Caremark transaction has cleared all regulatory hurdles, is fully financed and is ready to close. We continue to believe that the CVS Caremark offer is a compelling, certain proposition for Longs shareholders.”
The Longs’ board of directors apparently agrees. It has rejected the Walgreen offer and urged shareholders to vote in favor of the bid from CVS. (READ MORE)

“Longs is definitely using the information to help their case,” David Abella, a portfolio manager at Rochdale Investment Management in New York, told Bloomberg News.

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CVS Caremark Corp. (NYSE: CVS) – the nation’s largest provider of prescription medications – operates the CVS/pharmacy stores; the CVS.com online pharmacy; Caremark Pharmacy Services; and the MinuteClinic retail-based health care subsidiary. Additional information is available at investor.cvs.com.

Additional information about Walnut Creek, Calif.-based Longs Drug Stores Corp. (NYSE: LDG) and its RxAmerica LLC pharmacy benefit management subsidiary is available at www.longs.com and www.RxAmerica.com.

To learn more about Deerfield, Ill.-based Walgreen Co. (NYSE, Nasdaq: WAG) – operator of the Walgreens pharmacy and Walgreens Health Services, a provider of specialty pharmacy, mail service, home care and PBM services – visit www.walgreens.com.

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