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Longs' Options Limited After Walgreen's Exit

OKLAHOMA CITY -- With Walgreen (WAG) no longer interested in a deal -- and financing scare for other possible bidders -- Longs Drug Stores (LDG) may regret playing hard to get.

As the stock market plunged this week to its lowest level in years, Walgreen decided to keep its $3 billion and let Longs sell itself to CVS-Caremark (CVS - Get Report) instead. Walgreen had topped CVS's $75-a-share bid by offering $75 a share for the regional drugstore chain.

"With the stock market revaluation we're witnessing even as we write this, we doubt this will be the last takeover bid launched in headier days that is withdrawn," Gimme Credit analyst Carol Levenson said in a research note Thursday. "CVS might also want to reconsider the premium it is paying for Longs and the value of its real estate, but it's probably gone too far to turn back now."

Just weeks ago, Longs shareholders were looking for a bidding war. Now, their options are limited. Either they accept CVS's $71.50 offer -- which they previously rejected as too low -- or they hold on to their stock in a tough market and hope for a better deal.

That uncertainty is clearly reflected in Longs' stock, which fell 3.3% to $69.30 on Thursday. The stock now fetches $2 less than CVS has promised to pay.

"I'm not sure if that reflects heavy selling from those who bought above the CVS offer price, or whether it shows some skepticism of the CVS deal getting done," says Richard Clayton, research director at CtW Investment Group. "Given the fact that we continue to see substantial deterioration in the credit markets, CVS can't repeat enough that it can actually do this deal."
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