WOONSOCKET, R.I. & WALNUT CREEK, Calif. -- CVS Caremark Corp. and Longs Drug Stores Corp. today announced that they have entered into a definitive agreement under which CVS Caremark will acquire Longs for $71.50 per share in cash for a total purchase price of $2.9 billion including the assumption of net debt. Through this acquisition, CVS Caremark will acquire Longs' 521 retail drugstores in California, Hawaii, Nevada and Arizona as well as its Rx America subsidiary, which offers prescription benefits management services to more than 8 million members and prescription drug plan benefits [image-nocss] to approximately 450,000 Medicare beneficiaries.
The addition of Longs' locations in Central and Northern California, Hawaii and Nevada will provide CVS Caremark with substantial market positions in these markets. Further, the acquisition complements CVS Caremark's substantial presence in Southern California and provides a foundation for significant future growth throughout the nation's largest state. The transaction also offers CVS Caremark immediate market leadership in the Hawaiian market, where it currently does not have a presence.
Longs owns the real estate associated with approximately 200 store locations, three distribution centers and three office facilities. CVS Caremark has conservatively valued the store locations alone at more than $1 billion. These stores are located in markets where commercial real-estate values are among the highest in the country and prime locations are especially difficult to acquire, CVS said. It said it intends to "unlock the intrinsic value of these locations, as well as the distribution centers and office facilities, by monetizing a substantial portion of these assets over time."
With an enhanced national reach, CVS Caremark will be in a stronger position as it rolls out its new suite of offerings under the Proactive Pharmacy Care model, taking advantage of its retail and prescription benefits management services.
Tom Ryan, chairman, president and CEO of CVS Caremark, said, "This transaction provides tremendous benefits to CVS Caremark by accelerating our expansion in very attractive drugstore markets and strengthening our geographic reach. In fact, Longs has a significant presence in 10 non-CVS markets that are among the top 100 drugstore markets in the country. More than 490 of the stores we are acquiring are located in the Central and Northern California and Hawaiian markets, where Longs is a leading player. Longs' store network in these regions is excellent and is one that would take a decade or more for us to replicate through organic growth."
Warren F. Bryant, chairman, president and CEO of Longs, said, "The transaction represents an excellent opportunity for Longs to deliver significant and certain value to its shareholders while positioning its stores to thrive in the future for the benefit of its employees and customers. Over the course of the last five years, we have transformed Longs into a stronger, more productive, more profitable company. Given the changing industry landscape, we believe this combination is the logical next step for Longs. CVS Caremark has a strong record of successfully integrating drug store chains and pharmacy benefit services into its portfolio and working with employees to strengthen the performance, format and offerings of stores. We believe this will present excellent opportunities for our employees and ensure that our customers continue to receive excellent pharmacy care and high-quality products."
Longs generates annual revenues in excess of $5 billion, consistently strong operating cash flow, and reported EBITDA in the last 12 months of approximately $276 million. Assuming completion of the transaction in fourth-quarter 2008, the acquisition is expected to be dilutive to earnings per share in the first year, and accretive to EPS beginning in 2010. CVS Caremark expects to achieve significant cost synergies of approximately $100 million in 2009 and approximately $140 million to $150 million in 2010, resulting from purchasing efficiencies and other factors.
Following the acquisition, CVS Caremark will fill or manage more than 1.2 billion prescriptions per year and will operate approximately 6,800 drugstores in 41 states and the District of Columbia.
The acquisition will be effected through a tender offer to be launched shortly by a subsidiary of CVS Caremark for all outstanding Longs shares. The tender offer will be subject to, among other things, the condition that at least two-thirds of the outstanding Longs shares are tendered.
CVS Caremark plans to finance the acquisition with a $1.5 billion bridge loan facility, together with existing cash and liquidity, which will provide CVS Caremark with funding sufficient to satisfy its obligations for the acquisition.
Headquartered in Walnut Creek, Calif., Longs operates 521 retail pharmacies and offers a wide assortment of merchandise focusing on health, wellness, beauty and convenience.
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