A number of large investors with shares in Longs Drug Stores think the chain's management made a bad deal to merge with CVS Caremark. The argument against the $71 a share bid is that is doesn't fairly value Longs' real estate assets.
CtW Investment Group, a firm that advises union pension funds, is among the groups that believe Longs real estate is valued too low and needs to be revised upward, according to a Reuters report.
In a letter and email sent earlier in the week, CtW said, "We believe there are reasonable grounds to suspect that the current tender offer from CVS, which the Longs board has endorsed, undervalues the company's real estate assets."
Longs' largest investor, the Advisory Research hedge fund, has called on it to make the details of its real estate holdings available to shareholders.
David Heller, chairman of Advisory Research, recently said it is in Longs' best interest "to let shareholders know what they own. We can only make an enlightened decision if we can know the facts."
According to a Deal Journal blog on The Wall Street Journal website, Longs owns about 20 percent of its real estate and has enviable lease arrangements on most of its other properties.
If the offer made by CVS turned out to be too low, some are hoping that a bidding war could heat up between it and others such as Walgreens or Walmart.
The Deal Journal piece downplayed the prospect of another suitor getting into the mix. J.P. Morgan Chase, which has served as Longs' advisor, is prevented from shopping the company around to potential buyers nor is it allowed to discuss offers from interested parties. The deal breakup fee for CVS is $115 million.
Discussion Questions: Do you think that Longs has undervalued its real estate and that the deal between it and CVS may falter as a result? Is there a better takeover match for Longs than CVS?