Pershing Square Capital Management sent a letter to Longs Drug Stores (LDG) Thursday (9/11) expressing its continued opposition to its merger with CVS Caremark (CVS). Key passages for the letter are as follows:
For the reasons outlined in this letter, we do not currently support the Transaction and consequently do not intend to tender our 3.1 million shares into the CVS offer. Based on public disclosures to date, we believe that the process that led to the Transactions announcement was seriously flawed. On the other hand, with our efforts and the assistance of our financial advisor, The Blackstone Group, we remain hopeful that any past defects in the process can be remedied even at this late date (and despite what we view to be overly restrictive deal lock-up clauses).
While we are critical of the process, we take comfort from the fact that the Company and its advisors negotiated a contractual provision requiring CVS to hold the offer open for one full year until August 12, 2009. Furthermore, the Transaction permits the Company to pay its normal $0.14 dividend, so as shareholders we get paid dividends while we wait. As a result, we view ourselves and other shareholders as having a one-year put to CVS at the transaction price of $71.50. We believe that the value of Longs to CVS and other interested parties substantially exceeds the announced deal price. Given that approximately 18.6 million shares, or 52% of the basic outstanding shares of common stock, have traded at or above the $71.50 offer price since the Transactions announcement, the market appears to agree that a higher deal value should be achieved.
Consequently, we do not believe that the tender offers minimum tender condition of 66 2/3% of the outstanding shares will be satisfied by September 15, 2009, the earliest date that CVS would otherwise be entitled to take up and pay for tendered shares.
As of this update, the other two major LDG shareholders -- CTW and Advisory Research -- have not publicly disclosed their latest positions. However, it is fully anticipated that these two, along with other shareholders, possess nearly identical opinions as Pershing at this time.
In other words, this publication agrees with Pershing's assessment that the minimum tender conditions will not be met by the current September 15, 2008 expiration date.
Disclosure: We have no positions of any kind, in any security. We are a completely neutral source of research and analysis.