By Jessica Wohl
CHICAGO (Reuters) - Longs Drug Stores Corp
Longs, which plans to be acquired by CVS Caremark Corp
At issue is Longs' contention that a deal with Walgreen 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.
Longs said on Tuesday 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.
"I don't know if Walgreen gained any ground by issuing that letter," Morningstar analyst Mitchell Corwin said.
Longs told shareholders they should still accept the tender offer by CVS, which 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, said in the past that it would not support the offer from CVS. Pershing has 3.1 million Longs shares.
"If Walgreen ends up going to shareholders it will be interesting to see if Ackman can rally support for the Walgreen transaction," Corwin said. "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?"
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.
Walgreen said it preferred a negotiated deal but would take its offer directly to Longs' shareholders if necessary.
"Right now our desire is to enter into direct talks and be able to conduct our due diligence and see where that takes us," a Walgreen spokesman said on Tuesday.
Longs said that Walgreen's expression of interest is nonbinding and not financed -- another factor for it to refuse to hold merger talks.
Walgreen has said it believes it can get financing for its $75 per share offer, which it believes is superior to the $71.50 per share offer from CVS.
Longs, the No. 4 player in the U.S. drug-store industry, operates about 520 stores located in California, Nevada, Arizona and Hawaii.
Shares of Longs were up $1.19, or 1.6 percent, at $75.70 after jumping to $75.98 in morning trading on the New York Stock Exchange. Shares of CVS were down 6 cents at $34.96 and shares of Walgreen were down 2 cents at $31.74. Earlier in the day Walgreen shares dropped to $31.30, their lowest level since October 2003.
(Additional reporting by Aarthi Sivaraman in New York)
