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walgreens withdraws bid for longs, cvs free to expand empire

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Walgreen Waves Bye To Longs
Ruthie Ackerman, 10.08.08, 8:35 PM ET

Shareholders unhappy with Longs Drug Stores' agreement to be bought by CVS Caremark saw their hopes for a better price fade Wednesday night after Walgreen abandoned its competing bid for the pharmacy chain.

After the closing bell, Walgreen (nyse: WAG - news - people ) announced it had withdrawn its $75 per share cash proposal to acquire California-based Longs Drug Stores (nyse: LDG - news - people ).

Walgreen shares rose 1.3%, or 35 cents, to $26.49 in after-hours trading, as investors rejoiced that they wouldn’t be dragged into a prolonged battle with Longs. Longs shares, on the other hand, dropped 3.5%, or $2.47, to $69.21. In the last month, CVS shares have tumbled 20.4% and Walgreen shares plummeted 27.3%.

Last month, Longs said it was turning down Walgreen's offer in favor of a lower-priced deal with rival drugstore chain CVS Caremark (nyse: CVS - news - people ) that is more certain to be finalized and wouldn’t pose anti-trust risk. (See “ Drugstore War.”) Walgreen had offered Longs $75 per share, or about $2.8 billion, well above an already accepted bid of $71.50 per share from CVS Caremark, worth about $2.7 billion. Longs agreed to the deal with CVS in August. CVS reaffirmed its offer on Sunday and extended the deadline to Oct. 15.

Walgreen Chief Executive Jeffrey A. Rein said in a letter to Longs that given the significant turmoil in the U.S. economy over the last few weeks, it doesn’t make sense to continue a prolonged battle for the company.

“While we believe we made a compelling proposal for Longs, we do not believe it would be in the best interests of Walgreens shareholders, customers or employees to allow this situation to remain unresolved for an extended period of time,” he said.

Rein said that Walgreen’s strong balance sheet and cash flow will allow it to focus on maximizing shareholder value.

Last month, Pershing Square Capital Management, one of the largest shareholders in Longs, made it clear that it opposed the deal with CVS and identified four other potential buyers for the drug store chain. Pershing, which is headed by William Ackman, owns about 3 million shares in Longs, or 9.2%, and has previously said that CVS' bid didn't adequately value Longs' real estate holdings.

Two other major shareholders, Advisory Research and CtW Investment Group, have also publicly questioned the CVS deal.

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