Longs Sticking to CVS Merger Plan

Longs Drug Stores (LDG Quote) must believe in love at first sight.

After all, Longs still wants to marry CVS Caremark (CVS Quote) even though most of its shareholders oppose the planned merger and rival Walgreen (WAG Quote) has made a sweeter offer for its hand.

In fact, Longs spent just four days considering Walgreen's proposal before brushing the company aside.

"We're extremely skeptical that Longs' board gave Walgreen's offer anything like an appropriate review," says Richard Clayton, research director at CtW Investment Group, an activist organization that provides advisory services to union-backed pension funds. "So we're surprised and disappointed. ... We feel that the independent directors need to do a 'gut check' and decide whose interests they are going to serve."

So far, Longs' board - which is chaired by CEO Warren Bryant - has wholeheartedly embraced CVS.

Last month, in a deal that promised generous payouts to its top executives, Longs agreed to sell itself to CVS for roughly $2.9 billion, or $71.50 a share. Although the offer carried a sizable premium, it triggered considerable outrage: Because Longs controls a valuable real estate portfolio -- and has, so far, failed to get that portfolio appraised -- its shareholders feel shortchanged.

As a result, CVS managed to secure just 4.5% of Longs' stock by the time its tender offer drew to a close. CVS needs to obtain a two-thirds of Longs' stock in order to prevail. This past weekend, however, CVS simply extended the deadline for its offer without actually raising its bid.

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