OKLAHOMA CITY -- CVS Caremark ( CVS) has proven again it knows how to close a deal with its successful bid for Longs Drug Stores ( LDG). By overcoming threats of a bidding war, CVS has managed to win control of Longs without raising its original $2.9 billion bid for the company. By Monday morning, CVS had convinced Longs investors to sell 76.5% of their shares at the company's original $71.50 offering price. CVS needed to secure just two-thirds of Longs' stock to seal the deal. Longs' stock, up 2 cents to $71.47 Monday, reflected the finality of the situation. "We are very pleased with the strong response to our tender offer," CVS CEO Tom Ryan said on Monday. "Having now satisfied all closing conditions, we look forward to promptly purchasing the tendered shares and completing our merger with Longs." Last month, before the market cratered, CVS faced an uphill battle for the company. Longs shareholders, convinced that their company was worth far more, originally shunned CVS's offer and tendered only a fraction of their shares. Meanwhile, rival Walgreen ( WAG) stepped forward with a $75-per-share bid. This month, however, Walgreen had a change of heart. Faced with a plunging stock market, the company decided to keep its $3 billion and let Longs sell itself to CVS instead. To some, the move made sense. "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we're witnessing even as we write this, we doubt this will be the last takeover bid launched in headier days that is withdrawn," Gimme credit analyst Carl Levenson wrote on Oct. 9. "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."
Longs CEO Warren Bryant and other top executives stand to receive generous payouts from the CVS deal. Bryant could receive up to $23.6 million. By contrast, critics estimate CEOs at much-larger Walgreen and Rite Aid ( RAD) would secure $12 million to $15 million in a similar situation. All told, regulatory filings show, Longs' top five executives could pocket more than $45 million after the company changes hands. They simply need to leave for a "good reason" - and relocation now counts - to secure their maximum payouts. Meanwhile, Walgreen has lost CEO and chairman Jeffrey Rein, who abruptly resigned two days after the company withdrew its pursuit of Longs, leaving the company in a challenging retail environment. Rite Aid, facing even bigger challenges, laid out plans for a "reverse stock split" Friday as it struggled to keep itself listed on a major exchange. By exchanging up to 20 company shares for a single share, Rite Aid could finally lift its shares out of penny-stock territory. Otherwise, the stock, down another 3.9% on Monday to 68 cents a share, faces a steep uphill climb. On the other hand, CVS is regaining some lost ground. The company's stock, which has been hovering hovers near the low end of its wide 52-week range, rose 4.4% to $28.08, following news of the Longs deal. While many analysts feel bullish about CVS's prospects - especially with the Longs deal under its belt -- Levenson expressed some reservations about the company late last month.
At that time, when the credit markets first froze up, she decided to study every retail stock she covered for signs of liquidity risks. Although most of those companies landed in her "no worries" category, CVS fell into a smaller group that caused "moderate concerns." "Ever since Enron, retailers have been paying more attention to their liquidity and striving to build in some cushion in case access to the commercial paper market should evaporate," said Levenson. She was especially worried about "the high level of short-term debt (which is) likely to go even higher at CVS if it prevails in its bid for Longs." Since her note, CVS has managed to avoid the costly bidding war that Levenson once feared.