Wednesday, September 17, 2008

The Battle For Longs

U.S. drugstore chain CVS Caremark Corp. (CVS) agreed to buy its smaller rival Longs Drug Stores Corp (LDG). That was before Walgreen Co. (WAG) made an offer for Longs recently for $75/share, trumping the accepted CVS offer of $71.50/share. Walgreen also agreed to pay the $115 million termination fee that Longs would incur by accepting the new Walgreen offer. 'Going Long' seems to be on both these company's minds.


Longs operates 521 pharmacies in the western U.S. The move by Walgreen is seen as out of character as they have traditionally chosen to grow organically. The market seems to be anticipating further offers for Longs as the stock is currently trading above the Walgreen bid price of $75. Walgreen is looking to grow by snapping up Longs who runs valuable locations in the south west U.S. and especially the Hawaii market, which WAG had been looking to grow. This could turn out to be an interesting battle in the drug store industry as these two companies fight for market share and growth opportunities. Increasing market share helps keep competitive pressures at bay as incumbent players battle for customers and less traditional players like Wal-Mart (WMT) enter the pharmacy industry.


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5 comments:

  1. Would you be surprised MG that WAG approached SC as recent as 2007 about their interest in a friendly deal?

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  2. I can't publicly verify the information due the obvious confidentiality risk. But the individual who disclosed it to me was a junior VP with SC and made it quite clear that as early as last year WAG had some serious conversations about possible corporate structures/partnerships that would allow them to enter into the Canadian market. I don't know how seriously SC listened, but the tone from management has been that they wouldn't be interested.

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  3. Interesting..perhaps WAG would buy them if SC hit a bump in the road of growth.

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  4. That's what I was thinking and would explain why SC has been purchasing independent pharmacies while attempting to aggressively go nationwide. Ontario, then out to BC and try to close the gap inbetween.

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