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

After all, Longs still wants to marry CVS Caremark ( CVS) even though most of its shareholders oppose the planned merger and rival Walgreen ( WAG) 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.

On Friday, Walgreen crashed the party with a higher $75 offer of its own. Walgreen also agreed to cover a costly breakup fee, equal to another $3 a share, if Longs would accept its proposal instead.

Longs doesn't even look tempted, however. In fact, the company won't even talk to Walgreen right now.

"After carefully considering your expression of interest with our outside financial and legal advisors, our board of directors has determined not to furnish information to - nor have discussions and negotiations with - Walgreen," Longs stated in a letter to Walgreen on Wednesday. "The board has determined to continue to recommend to its stockholders that they accept the tender offer by CVS Caremark" instead.

Shares of Longs tumbled 3.5% to $73.64 on the news. Before that, the stock had actually climbed above Walgreen's offering price.

Meanwhile, Longs tried to justify its move.

For starters, Longs claimed that Walgreen shied away from accepting regulatory risks during past negotiations and could very well do so again. Moreover, the company said, Walgreen has presented no "clear roadmap" to complete the deal and could take a full year to close the transaction. Meanwhile, it added, Walgreen has offered no extra compensation for those delays.

In addition, Longs said, Walgreen has demanded due diligence on Longs before presenting a formal merger agreement and has arranged no financing for the deal in the meantime. Finally, it concluded, Walgreen cannot promise -- with the same certainty that CVS has -- that it can execute a deal in the end.

CtW's Clayton has already challenged most of those arguments. On the key matter of antitrust issues and possibly regulatory risks, for example, Clayton feels that Walgreen has actually gone a step further than CVS.

Notably, he stressed, Walgreen has pledged to assume all regulatory risks involved with the deal so long as it doesn't require the company to divest itself of stores representing more than 40% of Long's operating income. In contrast, he noted, CVS could have backed away if divestitures cost it just 30% of Longs' operating income instead.

"Now that a potentially superior proposal has surfaced, we believe the Longs board must take immediate steps to cure this flawed process and ensure that shareholders receive full value for their investment," Clayton wrote in a recent letter to the company's directors. Ultimately, "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."

Clayton wants Longs to start by establishing a special committee that includes only independent members of its board. With the help of an independent financial advisor -- whose fees are not linked to a particular deal -- he urges that committee to go seek out other offers and recommend the best one it can find.

"It's time for the board to step up and take control of this process," Clayton told TheStreet.com on Wednesday. If that happens, "we may well end up with a better price than even $75 a share."

Gimme Credit analyst Carol Levenson has been bracing for a possible bidding war from the start.

Levenson was a bit surprised when CVS suddenly announced plans to purchase Longs a month ago. After all, she noted at the time, CVS had just completed "a slew of scarcely digested acquisitions" when it decided to make the move.

"CVS has a strong track record of successfully buying, sprucing up and integrating other drugstore chains," Levenson said last month. However, "it always seems to be tempted by the next acquisition before recovering fully from the last one."

Most recently, CVS pursued a merger with Caremark in what was supposed to be an all-stock transaction. However, she noted, CVS had to sweeten that offer with $8.4 billion worth of cash in the end.

Now, CVS once again finds itself pursuing an unpopular deal even as a rival bidder keeps promising more.

"Although it wouldn't take much more in dollars for CVS to match the Walgreens bid (just over $100 million), we were already concerned about the cash it had agreed to spend, and the fact that it was embarking upon yet another acquisition without paying down debt from previous purchases," Levenson wrote this week. "CVS brandished its 'superior balance sheet' as an advantage during its negotiations with Longs. But Walgreens possesses even greater financial strength -- and we would hate to see CVS get into a prolonged bidding war with Walgreens on the other side of the battlefield."

Levenson views CVS's current bid for Longs as "reasonable" herself. With Walgreen now offering more, however, she doubts that Longs shareholders feel the same.

"They are likely to maintain that both bids are too low," she concluded. Thus, "although we hope CVS will show some restraint, we now have even more conviction in our 'underperform' rating" on the company.

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