CVS Caremark Corp. (CVS), a retail pharmacy and pharmacy benefit management business operator, Thursday said it has successfully completed its acquisition of Longs Drug Stores Corp. (LDG).
Longs Drug, based in Walnut Creek, California, operates 521 drugstores in California, Hawaii, Nevada, and Arizona. The company also owns a prescription benefits management unit RxAmerica that manages prescription benefits for 8 million people and 450,000 Medicare beneficiaries.
The Woonsocket, Rhode Island-based CVS Caremark, on August 12, agreed to acquire Longs Drug for about $71.50 per share in cash or $2.9 billion, indicative of a 32% premium to Longs Drug's closing price of $54.04 on the same day.
The deal is expected to expand CVS Caremark's position as the number one provider of prescriptions in the U.S. and help gain stores in fast-growing markets like California, Nevada, Arizona and Hawaii. Following the acquisition, CVS would fill or manage more than 1.2 billion prescriptions per year and operate approximately 6,800 drugstores in 41 states and the District of Columbia.
Both the parties agreed to the deal without any antagonism. However, Longs Drug's biggest shareholder, employee owned investment manager Advisory Research Inc., which held about 9.2% of the company, said they would not tender their shares to CVS. Ackman, another major Longs shareholder noted that Longs Drug's real estate is worth about as much as the CVS offer.
Meanwhile, the company's $71.50 per share bid was challenged by a $75 per share bid by Walgreen, one of America's leading drug store chains. Hurdles were finally cleared when Walgreen withdrew its bid on October 8 citing Longs Drug's refusal to enter into talks and turbulent economic conditions in the past few weeks.
After Walgreens' withdrawal, Advisory Research has determined to tender into the CVS Caremark, all of its clients' holdings of Longs representing approximately 9.2% of the outstanding Longs' shares.
CVS decided to tender all the outstanding shares of Longs and set the deadline to the tender on September 15. CVS, however, had to extend its tender offer for Longs, as it was not able to secure the minimum two-thirds of Longs' outstanding common shares. As a result, CVS rescheduled the expiry of its tender offer to October 15.
CVS extended its tender offer for Longs by one day, but said it had already received commitments for far more than the two-thirds vote required.
The company said about 28.13 million shares of Longs had been tendered and not withdrawn as of 9 pm on October 16, the date the tender offer was scheduled to expire. This represented 77.55% of the outstanding shares.
The company said the figure included 5.28 million shares guaranteed to be delivered within the next three trading days, a total of about 14.56% of outstanding shares.
In order to ensure that enough shares were delivered to top the two-thirds majority needed to move ahead with the deal, CVS extended the expiration of its tender offer to expire on Friday, October 17th.
On October 20, CVS said that about 76.51% of Longs shares have been tendered at $71.50 per share, as of October 17. The company further extended its tender offer to October 28 to enable shareholders who did not tender their shares to do so.
Commenting on the deal, CVS Caremark's chairman, president and chief executive officer, Tom Ryan said, "We look forward to working with our new Longs colleagues and to serving the millions of loyal customers who shop Longs stores. With the closing now behind us, we are focused on realizing the many benefits of this combination, which accelerates our expansion into key growth markets and strengthens our position as the nation's leading pharmacy services company."
The acquisition is expected to be dilutive to earnings in the first year, and accretive beginning 2010. In addition, CVS Caremark expects to achieve significant cost synergies of approximately $100 million in 2009 and approximately $140-$150 million in 2010, resulting from purchasing efficiencies and a reduction of SG&A expense.
CVS closed Thursday's regular trading session at $29.32, up $3.01 or 11.44%. LDG closed the session at $ 71.51.
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