Longs to give shareholders closer look
Some say buyer CVS may not be paying full price for the drugstore’s real estate assets
Longs Drug Stores Corp.
has agreed to hand over more information to pension funds suing the drugstore chain over its proposed $2.9 billion sale to CVS Caremark Corp.
, a lawyer involved in the case said yesterday.
Longs operates 39 stores in Hawaii and has plans for two more - at Kulamalu Town Center in Upcountry Maui and in Pearl City.
Some of Walnut Creek, Calif.-based Longs' biggest shareholders contend CVS may not be paying full price for Longs' real estate assets, concentrated on the West Coast and Hawaii, and have been weighing whether to tender their shares in the deal.
Longs plans to provide the real estate documents it gave CVS during the due diligence process, make people available for depositions, and release minutes from board meetings, according to Blair Nicholas, a lawyer representing the Louisiana Municipal Police Employees Retirement System.
A Sept. 12 hearing was set to hear a motion for a preliminary injunction. If the judge grants the injunction, which the courts don't often do in these cases, it could stall CVS' acquisition of Longs.
Woonsocket, R.I.-based CVS, the nation's largest drug-store chain, has offered to pay $71.50 a share for Longs. It was a 32 percent premium to Longs' stock price when the deal was unveiled Aug. 12.
The tender offer for Longs expires Sept. 15. For the deal to go through, CVS needs to obtain 66 percent of Longs' diluted common shares outstanding. CVS can always extend the timetable of the tender offer, increase the bid, or walk away from the deal.
CVS has put a "conservative" value of $1 billion on 200 Longs retail stores, three distribution centers and three office buildings. CVS has said it intends to make money off the assets by either selling them or generating cash through sale-leaseback transactions.
"CVS has the key to the jewelry store," said Nicholas of Bernstein Litowitz Berger & Grossman LLP, a litigation firm. "The real estate is the crown jewel here."
CVS has been prodded by BLB&G before. The law firm's 2006 lawsuit against CVS helped to force the drug-store giant to pay an additional $7.50 a share to acquire Caremark. In that deal, CVS had faced a rival bidder in Express Scripts Inc.
So-called arbitrage investors have been gambling that CVS will increase its bid. The shares have been trading above the deal price in almost every trading session. Arbitrage investors seek to profit on price spreads in acquisitions.
"The real estate underneath those businesses may ultimately be worth more than the businesses themselves," said Randall Baron, a lawyer at Coughlin Stolia Geller Rudman & Robbins, which is representing the Steamfitters Local 449 Pension Fund. It also has filed a lawsuit against Longs.
The class-action complaints are being heard in California Superior Court in Contra Costa County. The pension funds plan to file a motion to consolidate their cases, Nicholas said.
Advisory Research Inc. and activist hedge fund Pershing Square Capital Management - two of Longs largest shareholders - have questioned whether CVS and Longs' own management team are lowballed the value of the real estate assets.
Advisory Research has asked Longs to provide the information, while Pershing Square has hired Blackstone Group L.P. to help its value the real estate and see if there are other possible bidders for Longs.
In the class-action lawsuits, both pension funds also raised doubts about whether Longs conducted a fair bidding process.
They claim Longs withheld significant confidential information from the first bidder, who many analysts believe was Walgreen Co., the No. 2 U.S. drug-store chain.