Other Bidders Dry Up in Credit Crisis

Longs Drug Stores (LDG) shares dipped back down to their CVS Caremark Corporation (CVS) merger prices after a key activist admitted defeat in his bid to attract higher offers. Billionaire activist William Ackman revealed in a regulatory filing last week that he was unable to identify a higher bidder for the company. This is bad news for many arbiteurs that were holding out in hopes of a higher bid. CVS Caremark now has the acquisition guaranteed through a successful tender from the public.

“On September 11th, we wrote [the company] expressing our concern that a full process had not been completed to determine whether fair value had been achieved for Longs’ shareholders,” said Ackman in the filing. “Since that time, our advisors at Blackstone Group have canvassed the market for alternative transactions to the CVS $71.50 tender offer. Blackstone contacted a large number of potential parties and identified only one potential buyer, Walgreens, that expressed interest in purchasing the entire company.”

William Ackman and other investors initially opposed the deal before the global financial markets went into a tailspin and put a squeeze on available credit. The crisis ended up dragging down shares of many competing drug stores making CVS’ cash offer with secured financing the most attractive option. Other activists, like Advisory Research, also came around and agreed to tender its shares to CVS at the end of last week.

“We are disappointed that greater value could not be achieved,” said Ackman in closing. “Although clearly the opportunity cost of capital in the world has risen substantially since our efforts began over one month ago.” Ultimately, several buyers expressed interest in smaller pieces of the copany, including portions of the store base, RxAmerica and customer lists, but there were no other parties interested in making the full acquisition.

Shares of Longs Drug Stores are now trading just under CVS’ offer as the deal is set to be completed.

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