OKLAHOMA CITY -- If Walgreen ( WAG) pulls off a purchase of Longs Drug Stores ( LDG), the company will suddenly control two-thirds of the drugstores in one of the country's hottest markets.

While some doubt federal regulators would allow that kind of market power, Longs has achieved it on its own. Rankings by Chain Drug Review showed that Longs operated 69% of the drugstores located in booming Honolulu. Walgreen has approached that dominance in several other markets, but has made no wave.

Nonetheless, rival CVS ( CVS) has been sounding alarms. When cautioning Longs against a deal with Walgreen, CVS specifically included Hawaii.

"If the FTC (Federal Trade Commission) concludes that a Walgreens/Longs transaction would have an anticompetitive effect in Hawaii," CVS stressed in a recent letter to Longs' board, "it would require divestiture of most -- if not all -- of the Longs Hawaiian stores."

Obviously, CVS hopes to win control of Longs' 521-drugstore chain for itself. CVS has an agreement to buy Longs for $71.50 a share, but the company faces resistance from Longs investors, who view the offer as too low, and then received a higher $75-a-share bid from Walgreen.

Walgreen hopes to secure hundreds of Long drugstores located in high-priced markets like California and Hawaii. If necessary, however, Walgreen will shed some of those drugstores as long as it doesn't have to sacrifice more than 40% of Longs' overall profit in the process.

Walgreen doubts that "anything even approaching (that) threshold" will be required.

Last week, the FTC requested detailed information about three different markets -- including Hawaii -- as it reviewed the competitive impact of Walgreens' proposed deal. While some saw this as a clear warning sign, the agency asked for data on mail-order traffic as well. Walgreens offers mail-order service, but it doesn't own one of the huge pharmacy-benefits managers that tend to dominate that business.

In contrast, CVS runs a giant PBM and would further expand its mail-order business with its planned buyout of Longs. Even so, CVS weathered no setbacks during its own regulatory review.

"If the FTC follows what it has done in past retail pharmacy investigations - including the recently reviewed CVS/Longs transaction - there should be no significant antitrust hurdles facing Walgreen in its bid to acquire Longs," antitrust lawyers at Doyle, Barlow and Mazard stated in a recent report. "Based on our review of all overlaps in California, Nevada and Hawaii, the antitrust risks are minimal and present no impediment to Walgreen obtaining antitrust approval without any unnecessary delay."

But Longs says that roughly 63% of its Northern California drugstores already lie within two miles of a competing Walgreen's store. Together, it says, the two companies would run more than twice as many drugstores as its largest rival in the area.

CVS has gone a step further and identified five California markets that could pose risks: San Francisco, Oakland, San Jose, Salinas and Santa Cruz.

Yet San Francisco looks like an odd threat -- Longs just entered that particular market and operates only one drugstore there.

In contrast, the Internet yellow pages show, Walgreen already ranks as a powerhouse in San Francisco with about five dozen drugstores in the city. In total, the listings indicate, Walgreen controls a whopping 40% of the market there.

Even if Walgreen buys Longs and keeps all of the drugstores, those listings suggest, the company would emerge with less power in the remaining four markets pegged as risks than it already enjoys in San Francisco today.

Using Chain Drug Store's latest rankings, however, possible threats begin to surface. Notably, Chain treats San Francisco and nearby Oakland as a single metropolitan area. It combines some other neighboring cities into single markets as well.

In San Francisco/Oakland, the list reveals, Walgreen would suddenly control 71% of the drugstores (up from 38%) after purchasing Longs. It would see its market share more than double, surging from 30% to 68%, in the San Jose area as well.

Still, Walgreen controls huge chunks of other markets already. For example, Chain Drug Store's rankings show, the company operates 67% of the drugstores in El Paso, Texas and 60% of those in Milwaukee. All told, the company runs at least half of the drugstores in a dozen different cities right now.

Other drugstore chains have held that same kind of power.

Last year, Rite Aid ( RAD) purchased the Brooks/Eckerd drugstore chains to compete with Walgreen and CVS. After that deal, Chain Drug Review notes, Rite Aid became the leading drugstore chain in 16 major cities and saw its share of the Buffalo, N.Y., market jump beyond the 50% mark.

CVS has enjoyed similar bragging rights. After purchasing giant Revco in 1997, for example, CVS followed up by snatching a prized drugstore chain in the Midwest. As a result, Drug Store News reported at the time, CVS instantly "inherited a 45% share" in the huge market of Detroit.

Although CVS has since lost some of that power, Chain Drug Review's rankings show, the company boasts bigger empires elsewhere. It operates 47% of the drugstores in Boston, for example, and more than half of the pharmacies in the nation's capital of Washington, D.C.

If CVS wins control of Longs, experts say, it would dominate several West Coast markets as well.

"CVS and Longs together account for approximately 40% market share in a number of metropolitan statistical areas, including San Diego, Los Angeles, Santa Barbara, Las Vegas and Reno," the CtW Investment Group emphasized in a recent letter to Longs. "Despite the fact that the stores in these areas comprise nearly 29% of Longs locations, the CVS transaction was approved with no required divestitures and without even a second request for information from the FTC."

Still, based on the rankings from Chain Drug Review, Walgreen would control at least 60% of the drugstores in four California markets if it buys Longs and keeps the entire chain. To some, however, Walgreen appears to have entirely different aims.

"Although this proposal was not accompanied by the usual investor presentation touting the benefits of the combination, Walgreen mentioned 'meaningful cost synergies' and expansion in fast-growing markets - Hawaii in particular," Gimme Credit analyst Carol Levenson noted earlier this month. "Putting all this together, we infer that Walgreen wouldn't mind being forced to divest a good chunk of Longs' California stores in order to get its hands on the Hawaii stores and the company's pharmacy benefits manager."

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