Show Me (More Than) the Money

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It's great to be popular. If you're a business owner ready to cash out, it's especially gratifying to have two potential suitors in the wings.

But picking the right one isn't always easy.

That's the dilemma facing California-based Longs Drugs. The drugstore chain is currently in the midst of a heated buyout battle between the two biggest industry behemoths: Walgreen (WAG) and CVS Caremark (CVS).

What makes Longs (LDG) so alluring? It all goes back to the power of location. Longs Drugs has a strong foothold in Northern California, an area where CVS has few stores. CVS is hoping to expand its pharmacy benefit management services, which coordinate prescription services for employee health-care plans. But they can only do so if employers know their workers will have access to pharmacies throughout the U.S.

Clearly, CVS is a motivated buyer. "In a nutshell, we would view Longs as a nice win for Walgreens, but a must-have for CVS Caremark at this point," wrote analyst Mark Miller of William Blair & Company in a research note.

So why is Walgreen jumping in? Although it has stores throughout California, Walgreens would like to dominate the north as well. The company would also love to expand in Hawaii, where Longs is the dominant pharmacy.

Longs originally pursued a deal with CVS, only to see Walgreen burst in with a higher offer. But promising more per share doesn't necessarily guarantee a win. Longs has turned down the Walgreens offer, citing a number of issues that made the company wary of a potential deal.

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