Longs executive says buyout likely to get OK
Staff and news reports
At an investor conference yesterday,
CVS Caremark Corp. Chief Executive Tom Ryan said he believes a $2.7 billion deal to buy
Longs Drugs Stores Corp. will get the necessary two-thirds shareholder approval.
CVS' tender offer expires Sept. 15, although Ryan noted it can be extended for up to a year. He also said the Longs stores are more valuable to CVS than most other retailers, and not many banks and retailers are looking for sites that size.
Some Longs shareholders are saying they'll oppose the deal if Longs doesn't tell them more about the value of its real estate. Hedge funds and union-sponsored pension funds are wondering if CVS is low-balling the value of Longs real estate assets in California, Hawaii, and Nevada.
In a letter dated Monday to Mary Metz, the chairwoman of Longs' governance and nominating committee, Richard Clayton of CtW Investment Group says the buyout price should have been between $76.62 to $78.81 a share, which would put the final price near $3 billion, on the high end.
CVS' offer was a 32.3 percent premium from Longs' closing price on Aug. 12.
Clayton said Longs should disclose the value of its real estate portfolio, saying Longs investors need more information about the deal before deciding how to vote. He said two investment firms, Pershing Square Capital and Advisory Research, agree that Longs' portfolio is being undervalued.
"There is a lot of misinformation out there around the real estate side of the business," Ryan said. "We know what these buildings are worth and these buildings are worth more to a CVS drug chain than almost any other retailer. If some XYZ company bought these stores and tried to sublease these out and sell these, they would be worth less in the marketplace."
Woonsocket, R.I.-based CVS as put a conservative value of $1 billion on 200 Longs drug stores, three distribution centers and three office buildings. It has said it intends to make money off the assets by either selling them or generating cash through sale-leaseback transactions.
CTW Investment, which advises union pension plans that own Longs stock, said CVS could be underestimating the value of those assets by 18 percent to 26 percent. It pegged the value closer to $1.18 billion to $1.26 billion.
Longs, based in Walnut Creek, Calif., said yesterday that retail drug store sales for the four weeks ending Aug. 28 were $364 million, a 0.9 percent increase from last year. Same-store sales increased 1.4 percent.