CVS Buying Longs Drug for $2.7B
Woonsocket, R.I. CVS Caremark Corp. said Tuesday that it is buying Longs Drug Stores Corp. in a deal valued at $2.7 billion. The $71.50 per-share cash offer, announced after the end of trading Tuesday, was a 32% premium over Walnut Creek, Calif.-based Longs’ closing price of $54.04.
Longs operates 521 drug stores, mostly in California, and also has sites in Hawaii, Nevada and Arizona. Executives at CVS said the acquisition will give the chain a significant presence in fast-growing West Coast markets where property is often unavailable or expensive to acquire.
“Geographic reach has become a more important thing for us,” CVS chief financial officer David Rickard told the Associated Press in an interview. “This directly addresses the Central and Northern California markets and gives us access to those consumers.”
CVS executives said building such a portfolio could take the company a decade to complete, while spending hundreds of millions to acquire on property.
“These are highly attractive regions of the country, where we are not currently represented,” CVS chairman and chief executive Tom Ryan told investors during a conference call. “And they are very difficult real estate markets to penetrate.”
The Longs stores in the continental United States will be converted to the CVS brand in 2009, while the locations in Hawaii will retain the Longs’ name for the foreseeable future.
As part of the deal, CVS will also acquire Longs’ Rx America subsidiary, which offers prescription-benefits-management services to over 8 million members and prescription-drug-plan benefits to approximately 450,000 Medicare beneficiaries.
Longs was founded 70 years ago by brothers Joe and Tom Long. In recent years, some industry analysts said Longs would have a difficult time competing with national players such as CVS, Walgreens Co., and Rite Aid Corp. Analysts were also critical of the regional chain’s outdated technology and lack of customer conveniences.
The deal is the latest in an acquisition strategy that has seen CVS leapfrog over rival Walgreen Co. to become the largest drug store chain in the country in terms of number of stores. After the acquisition is complete, CVS will operate 6,800 drugstores in 41 states and in the District of Columbia.
Although some analysts questioned the timing and price of the purchase, most said the move is a good geographic fit. They noted that CVS is still integrating Caremark and has experienced some slowing momentum lately.
Credit Suisse analyst Edward J. Kelly said in an Associated Press report that the offer was “surprisingly high” and added that Longs is “not a compelling strategic fit” because its stores are too big and 90% of its portfolio is located in less-desirable strip centers. He added, however, that the move makes sense from a geographic standpoint, since it expands CVS’ West Coast presence.
Citi Investment Research analyst Deborah L. Weinswig was more positive about the purchase price.
“While investors may find the purchase price high, we believe that the price CVS paid was reasonable based on historical acquisition multiples, as well as the acquired real estate assets valued at over $1 billion, and access to key retail markets and new markets for its growing pharmacy-benefits-management business,” Weinswig said in the same AP report.
Saralegui to represent Nestle Pure Life
GREENWICH, Conn. Nestle Waters North America has signed a two-year partnership agreement with Cristina Saralegui, an internationally-acclaimed Hispanic television personality. Under this agreement, the company reported, Saralegui will serve as spokesperson for Nestle Pure Life, appearing in print and broadcast advertising and online on behalf of the company’s new Vive Sanamente (Live Healthy) marketing campaign.
“I am thrilled to be collaborating with Nestle Waters on Vive Sanamente,” said Saralegui. “I want to educate Latino moms about the importance of teaching their children healthy habits that will last them a lifetime. There is no doubt that drinking water and exercising regularly are essential to maintaining a healthy lifestyle.”
Saralegui, host and executive producer of El Show de Cristina, one of the highest-rated programs on Spanish-language television, is also being featured in point-of-purchase consumer brochures and public relations programs.
Linens ‘N Things reports 21% 2Q sales decline
CLIFTON, N.J. Linens Holding Co. reported total sales of $504 million for its second quarter ended June 28. Net retail sales of $468.1 million for the quarter represented a 21.1% decrease over the same period in 2007. Total net retail sales for the quarter does not include $35.9 million in liquidation sales in accordance with the previously announced closing of 120 stores in the second quarter.
The decrease in second quarter net retail sales resulted from a comparable-store sales decline of 18.3% for the period and the net reduction of 105 stores from the prior year.
During the second quarter of 2008, the company opened two stores and closed 120 stores, as compared with opening seven stores and closing zero stores during the second quarter of 2007.
As of June 28, Linens ’n Things operated 475 stores in 46 states and seven provinces across the United States and Canada.
Due to its recent Chapter 11 bankruptcy filing, the company requires additional time to complete the preparation of its consolidated financial statements for the second quarter of 2008. The company is performing an impairment analysis related to certain of its tangible and intangible assets, which is not yet complete.