CtW Investment Group proposes auction for sale of Longs

WASHINGTON In light of Walgreens’ unsolicited bid to buy Longs for nearly $3 billion in cash and debt assumption, CtW Investment Group is calling on Longs Drug Stores’ board to establish a special committee and hold an auction for the company.

CtW Investment Group works with pension funds, many of which are Longs shareholders.

As previously reported by Drug Store News, Walgreens stepped in late Friday with an unsolicited bid to buy Longs for $75 per share, a move that aims to quash a takeover agreement Longs management had already approved with CVS Caremark.

CVS announced in mid-August that it plans to buy for $2.9 billion, including debt, Longs’ 521 retail locations in California, Hawaii, Nevada and Arizona, as well as its PBM services.

CVS’ offer, which is for $71.50 per share in cash, has sparked some concerns among some Longs’ investors who questioned whether the true value of Longs’ real estate assets, a key component of the transaction, wasn’t actually higher.

Longs owns the real estate associated with approximately 200 store locations, three distribution centers and three office facilities. CVS has “conservatively” valued the store locations alone at more than $1 billion.

In a letter dated Tuesday and sent to Mary Metz, chairperson of Longs’ governance and nominating committee, the investment group said a special committee must, at minimum, retain an independent investment advisor, solicit offers from all interested parties and recommend the best offer to the board and shareholders.

A spokesperson for Longs was not immediately available for comment. In a statement issued late Friday confirming receipt of Walgreens’ bid, Longs stated that its “board of directors continues to recommend to its stockholders that they accept the tender offer by CVS Caremark and tender their shares of Longs in that tender offer.” According to a CVS spokesperson, the company has no comment.

However, in a statement released Sunday announcing an extension of its tender offer for Longs, Tom Ryan, chairman, president and chief executive officer for CVS, stated, “Our offer represents a full and fair price for Longs shares, and we stand firm in our price. Furthermore, CVS Caremark’s offer has cleared all regulatory hurdles and provides certainty of completion to Longs shareholders.”

The letter from CtW Investment Group noted that Pershing Square Capital Management has, in a letter to Longs shareholders, stated it believes the value of the company’s real estate holdings “substantially exceeded the price implied by the CVS offer. Pershing Square also noted that it had been in contact with four investors whom it believed would be interested in making an offer for Longs.”

The letter went on to say that proxy advisory firm Risk Metrics Group has recommended that Longs shareholders not tender their shares to CVS, citing concerns over Longs’ “failure to disclose more information concerning its real estate portfolio.”

“In order to obtain full value for shareholders, the Longs board should immediately establish a special committee comprised solely of independent directors to oversee and open, competitive auction of the company. We believe that only an open, competitive auction will cure the flawed process that has so far characterized the Longs board’s effort to sell the company, and ensure that shareholders receive the best available terms,” the letter stated.

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