CVS to Acquire Longs Drug Stores

Discussion
Aug 13, 2008

By George Anderson

CVS Caremark is at it again. “It” being acquiring another pharmacy chain – this time CVS has made a deal to buy Longs Drug Stores.

In the past four years, CVS acquired roughly 1,200 Eckerd stores from J.C. Penney, 700 Savon pharmacies from Albertsons and now it is on the verge of acquiring another 521 locations from Longs.

The deal valued at $2.9 billion, if approved by regulators, will give CVS a strong foothold in Arizona, California, Hawaii and Nevada.

Tom Ryan, chairman, president and chief executive of CVS Caremark, said in a press release, “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 ten 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 Bryant, chairman, president and chief executive officer of Longs, said, “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.”

In addition to Longs’ retail operations including three distribution centers and corporate offices, CVS will also acquire the company’s Rx America subsidiary, which offers prescription benefits management (PBM) services to over eight million members.

Discussion Questions: What is your reaction to CVS Caremark acquiring Longs? What will this mean for the two companies and those that will have to compete with them after the deal is completed?

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11 Comments on "CVS to Acquire Longs Drug Stores"


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Dan Nelson
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Dan Nelson
13 years 9 months ago

This move should come as no surprise to anyone. CVS has an outstanding history of integrating acquisitions, and while Longs’ format is very different from the traditional CVS format I’m sure the integration of Longs’ stores and people into the CVS family of pharmacies will go smoothly. CVS has coveted this area of the US, and Longs’ has some outstanding real estate that could not be duplicated with organic expansion.

Tom has built the best leadership team in the Industry, and their history of expansion through acquisition is unquestioned. CVS knows how to handle this move in all the right ways, and Longs will quickly fall into the CVS fold of coast to coast stores under the CVS banner.

David Biernbaum
Guest
13 years 9 months ago
Congratulations to CVS. There is no doubt that CVS has a very strong management team and is an extremely well run organization. There will be a few implications for manufacturers that should be taken under consideration: 1. In order to achieve critical mass, it’s even more important now for suppliers to achieve distribution at CVS, Walgreens, and Rite Aid. 2. One of the great attributes that Longs had is that the retailer had a “mind of its own” and often would support niche brands even if not carried by all the major national chains. Consumers could often find that specialty brand at Longs. 3. With only three drug chains dominating the national scene, I do hope that the assortment in the front will not be exactly alike in all three chains. Consumers desire a point of difference in one chain vs. another. Honestly, we have arrived at a point where all stores are starting to look almost the same, and feel the same, to the consumer. 4. In some of the past acquisition events only… Read more »
Jonathan Marek
Guest
13 years 9 months ago

I’m just surprised it didn’t happen years ago! Longs has been run so poorly–dirty and dingy stores, odd merchandising, unhelpful staff, seemly random pricing–that CVS can help to improve. And my experience is in the Bay Area, Longs’ own back yard. CVS ought to figure out quick what capital they need to put into these stores, on a store-by-store basis, to start competing with WAG here.

Joel Warady
Guest
Joel Warady
13 years 9 months ago

This is a great move for CVS. It is a perfect fit, and allows CVS to expand into markets where it was previously under-represented. For the manufacturer, it makes CVS that much more important, and it removes one more customer from their customer list. For other retailers, it creates a much stronger competitor. Walgreens might want to re-think their “organic growth” strategy. CVS seems to be teaching them a thing or two about retailing, and about growth by acquisition.

If I were Bartells and Kinney Drugs, I would polish my signs, and get ready to get a whole lot of money for my chains.

John Crossman
Guest
John Crossman
13 years 9 months ago

I think it is the right time for the best retailers to ramp up. Publix purchased numerous Albertsons locations and now this. Great move CVS! More retailers need to take note and make the move while the market is down.

Ryan Mathews
Guest
13 years 9 months ago

It should be good for CVS. What we are seeing is the drug store version of the mass channel–rapid consolidation into the hands of a few players. The more interesting question is, what happens next?

Camille P. Schuster, Ph.D.
Guest
13 years 9 months ago

The acquisition of Longs by CVS creates less differentiation in the drug store market. Having three major chains dominate that market may cause some concern. However, with the blurring of lines between drug, grocery, mass market, and convenience stores, there is a greater need for any chain to differentiate itself, serve consumer needs, and create loyal consumers not just within one category but across categories as well.

Paula Rosenblum
Guest
13 years 9 months ago

CVS did an impeccable job transforming Eckerd into CVS, almost overnight. Assortments are better, in stock positions are better, but the pharmacy personnel remain as accommodating as they were before.

I have to say, these guys are real pros at integrating their acquisitions.

Craig Sundstrom
Guest
13 years 9 months ago

From the perspective of another EastBay HQ disappearing, I’m less than enthused; I also remember (a few years back) Rite Aid had problems integrating some of the larger format stores it had acquired from Payless and ended up selling them…to Longs. But like everyone else, I guess I’ll wait and see (and hope for the best).

Mark Lilien
Guest
13 years 9 months ago

By some measures, CVS paid too much: about 26 times earnings, a 32% premium for the Longs stock compared to the price just before the announcement. On the other hand, RxAmerica sales grew 67% in the past year and the Longs real estate is worth $1 billion. If you deduct the value of the real estate from the price, CVS paid about 16 times earnings, not 26.

What will CVS (and all the other drug stores) do if the state and federal governments wise up and reduce their prescription drug allowances? Even though the prescription area is only a small part of the store, the margin that pays most of the overhead doesn’t come from the food, novelties, and cigarettes. It comes from prescriptions, often from Medicaid, Medicare, and other government programs.

James Tenser
Guest
13 years 9 months ago

A stunning move for CVS, but like Ryan, I have some questions about what happens in the chain drug sector when it boils down to three players. If it weren’t for the pharmacies in Walmart, Target, Costco and large supermarket chains, I’d be concerned about how this concentration of power might affect consumer interests.

The big conceptual question I’m left with is “What is a chain drug store today?” A corner convenience store? A personal care superstore? A modern day five-and-dime? A health care provider?

The Caremark side of CVS is kind of a sleeper in all this. Since it interfaces with health insurers and benefits plan administrators, one might argue that its interests are more commercial and less consumer-centered. There’s a lot of profit in prescription drug plans. I wonder if Longs Rx America assets were the real prize–as opposed to the 500 stores.

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