Longs' largest holder says higher bid worth risk

CHICAGO (Reuters) - Longs Drug Stores Corp rebuffed a renewed takeover push by Walgreen Co , while Longs' largest shareholder said it was willing to take the risk a deal with Walgreen could bring, to get the best price.

Longs agreed to be bought by CVS Caremark Corp for $71.50 per share, or $2.57 billion, in August. Walgreen swooped in with a bid of $75 per share a month later.

Longs has repeatedly said the Walgreen offer risks regulatory hurdles, particularly concern over the two chains' concentration of stores in California, that could delay a closing by as much as 12 months.

On Tuesday, Longs said shareholders should still prefer its deal with CVS, despite a warning from Walgreen the day before that it may take its rival bid hostile if Longs refused to negotiate.

Longs said that Walgreen was still not proposing any way to offset antitrust risks and had not presented a "clear roadmap to completion."

The Longs-CVS agreement has already received regulatory approval, though some of Longs top shareholders say they won't support the deal because the offer price is too low.

David Heller, president of Advisory Research Inc, told Reuters he still sought a better price for Longs, whether that came from Walgreen or CVS. Advisory Research owns about 9.2 percent of Longs and is its largest shareholder.

Walgreen's offer is "the best one that I've seen so far," Heller said in an interview. He added that he was willing to "take the risk" to get the best offer.

Heller said he has not been approached by Walgreen yet and declined to name other possible bidders.

Longs shares closed 2.2 percent higher at $76.15.

EXAGGERATED RISK?

On Monday, Walgreen said Longs has exaggerated the potential antitrust risk, adding that a combined company would have less than 35 percent of the retail pharmacies in almost every metropolitan area where the two operate.

Longs said that Walgreen's expression of interest is nonbinding and not financed -- another factor for it to refuse to hold merger talks. Walgreen believes it can get financing for the bid.

Longs shareholders have also complained that the company hasn't let anyone but CVS assess the value of its real estate.

"I think their process is flawed, I think their judgment is poor and I think their actions are not in the best interest of the shareholders," Heller said of Longs.

Heller wants to see Longs "tell everyone what their real estate holdings are so other people can come in and be bidders."

CVS's tender offer expires October 15. As of September 12, about 1.6 million Longs shares had been tendered.

Pershing Square Capital Management, the hedge fund managed by William Ackman, has also said it would not support the offer from CVS. Pershing has 3.1 million Longs shares.

But analysts said it may still be difficult to rally other shareholders in favor of a Walgreen deal.

"If Walgreen ends up going to shareholders it will be interesting to see if Ackman can rally support for the Walgreen transaction," said Morningstar analyst Mitchell Corwin. "The question is, does that increased offer in a nonbinding letter compensate Longs shareholders for the risk of the transaction taking a long time or not going through?"

Longs, the No. 4 player in the U.S. drugstore industry, operates about 520 stores located in California, Nevada, Arizona and Hawaii.

CVS and Walgreen are seen as the best strategic buyers for Longs and are the only two with offers on the table. Another drugstore chain, Rite Aid Corp , "is saddled with debt, they can't afford a transaction," Corwin said.

Shares of CVS fell 3.9 percent to close at $33.66 and shares of Walgreen dropped 1.3 percent to end at $31.35. Earlier, Walgreen dropped to $31.26, its lowest level since October 2003.

(Additional reporting by Aarthi Sivaraman in New York; Editing by Gary Hill)