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Longs Drugs CEO Set for Fat Merger Payday

Warren Bryant could snag up to $23 million, if CVS' buyout goes through. But some shareholders want a better deal.

OKLAHOMA CITY -- No wonder Warren Bryant jumped at the chance to run

Longs Drug Stores



Bryant could have held out for the top spot at


(KR) - Get Free Report

, the giant grocery chain where he started out as a part-time bagger and rose through the ranks to become senior vice president. After all, Kroger wound up hiring a new CEO the year after Bryant departed.

But Kroger offers no special change-of-control benefits for its executives.

Longs, however, promises its CEOs generous payouts -- exceeding those offered by some of its largest rivals -- if the company sells itself.

Bryant could snag up to $23.6 million if a deal to be bought by


(CVS) - Get Free Report

goes through. In contrast, critics estimate, CEOs at much-larger




Rite Aid

(RAD) - Get Free Report

would secure $12 million to $15 million in a similar situation.

All told, regulatory filings show, Longs' top five executives could score more than $45 million once the company changes hands. They simply need to leave for a "good reason" -- and relocation now counts -- in order to secure their maximum payouts.

Last month, industry giant


offered $2.9 billion for the regional drugstore chain. That all-cash tender offer, which translates into $71.50 a share, represents a 32% premium over Longs' pre-announcement stock price.

Since then, rival Walgreen has offered Longs an even higher $75 a share. Longs' board -- which is chaired by Bryant -- has pledged to review that competing offer. Meanwhile, however, the board continues to formally support the lower CVS bid -- and the big executive payouts that come with it.

Longs shareholders have shunned the CVS deal from the start. They feel that Longs' valuable real estate, located in pricey markets like California and Hawaii, makes the company worth far more.

CVS has pegged the value of Longs' real estate at "more than $1 billion." Faced with a courtroom fight over the matter, Longs itself recently admitted that it had never even gotten its real estate appraised. Moreover, the company promised CVS that it would supply the public with no detailed information about the value of its holdings.

David Heller, president of Advisory Research, is incensed. He plans to hold onto his firm's big stake in Longs until he finds out how much the company's real estate is actually worth. Other major shareholders intend to do the same.

Faced with that resistance and a rival bid, CVS said Sunday that it would extend its tender offer -- without raising it -- through Oct. 15.

Longs did not answer questions for this story. Investors continue to make plenty of noise, however. They say Longs has put its management team first -- offering strict deal-protection measures in exchange for generous parachutes -- and hope for a better offer down the road.

"I don't know whether the right price for the stock is $71.50 or $93.80," Heller declared in a recent interview with

. "And there's no way, without more information, we as fiduciaries can make that determination.

"I've been in this business since 1961," he continued. "And this is as wrong as anything I've ever seen."

Longs does have a history of treating its executives right.

In 2000, for example, Longs gave CFO Steven McCann a so-called "transition bonus" equal to more than half his annual salary when he joined the company. It also financed a vacation for McCann's entire family before the CFO started work. It even bought McCann's old house, loaned him money for a new one and ultimately forgave the entire debt.

In 2002, Longs promised Bryant an annual salary of at least $750,000 -- with the opportunity to score twice that much in cash bonuses -- and showered him with 230,000 stock options. But the company has grown even more generous since that time, with its executive compensation now ranking above the 75th percentile of its peer group. As a result, Bryant has managed to pick up more than $5.75 million in cash and stock for the past two years in a row.

To be fair, Longs shareholders have profited as well. The stock, which fetched just $20 when Bryant first arrived, had already doubled by the time that Longs started pondering a possible deal this spring. Fueled by the CVS offer - and now by one from Walgreen - the stock has shot to $76.

Heller's firm has participated in those gains. Nevertheless, it continues to hold out for more information that could push the stock even higher down the road.

"Would we rather have it at $70 than $40? Of course," Heller said. "Are we in a rush to do anything? No."

And don't look for much help from Longs' board -- its lead director, Murray Dashe, had a generous sendoff of his own.

In 2005,

Cost Plus


began shopping for a new CEO to replace Dashe after its business started to slide. The furniture retailer took a $2.3 million charge to cover Dashe's severance and has been struggling to regain its footing ever since. The company's stock, which approached $50 during Dashe's glory days, now fetches just $1.35 a share.

Since retiring, Dashe has relied on his boardroom service at Longs and



for pay. Interestingly, both companies are in the process of selling themselves right now. Dashe could soon cash in all of his stock options as a result.