WOONSOCKET, R.I.--(BUSINESS WIRE)--
CVS Caremark Corporation (NYSE:CVS) today took strong exception
with a memorandum recently submitted to the Board of Directors of
Longs Drug Stores Corporation (NYSE:LDG) by a law firm retained by CtW
Investment Group, as follows:
We are aware that the Board of Directors of Longs recently
received a memorandum from a law firm retained by the CtW Investment
Group, which purports to offer an "independent" antitrust analysis of
the regulatory timing and substantive risk posed by a potential
acquisition of Longs by Walgreens. While not attempting an exhaustive
rebuttal, we feel it is important to point out the basic factual
inaccuracies and analytic deficiencies contained in this highly
misleading memorandum, which attempts to equate the regulatory risks
of a CVS/Longs combination and a Walgreens/Longs combination.
The Analysis Contains Numerous Inaccuracies
Some of the basic inaccuracies in the arguments made in the
memorandum include:
- Erroneous calculation of store overlaps. The memorandum claims
that "in CVS/Longs, the FTC chose not to engage in a long
investigation even though almost 2/3 of all Longs stores
overlapped with CVS stores..." While the memorandum did not
disclose specifically how it defined an "overlap," this
assertion is plainly inaccurate, since there are 13
Metropolitan Statistical Areas (MSAs) across which Longs
operates approximately 200 stores and across which CVS has
none. Furthermore, in the San Francisco MSA, Longs has 22
stores while CVS has no retail pharmacies and only one
specialty pharmacy and in Oakland, Longs has 62 stores while
CVS has no retail pharmacies and only two specialty
pharmacies. Thus, approximately 284 of Longs' 521 pharmacies,
or over 54%, are located in MSAs where CVS has zero retail
pharmacies.
- Overgeneralization of store overlaps. The memorandum takes
Nipomo, California, one of the few isolated overlaps posed by
the CVS/Longs transaction, and attempts to use it as a
standard example by which the several hundred similar
situations posed by a Walgreens/Longs transaction would be
judged and approved. There is no basis whatsoever to assume
that the discretionary judgment of the FTC staff in one
isolated situation would be applied as a rule of decision in a
deal that features hundreds of overlaps and high MSA-level
concentrations, and says nothing about the outcome of an
analysis of the larger third party payor market.
- False statements regarding CVS intention to enter Hawaii
market. The memorandum claims that "CVS had plans to enter the
Hawaii market," which "seemed to be of little concern to the
FTC." This claim is patently false, as CVS has never had plans
to enter Hawaii. Therefore, the FTC's handling of CVS/Longs
provides no insight into how it would handle the combination
of Walgreens and Longs, for which Hawaii would be a problem.
As has been publicly disclosed, the "Hawaii problem" is
already an area of inquiry in the document request that Longs
received from the FTC.
- Inaccurate assessment of Walgreens' antitrust concerns in
Hawaii. The memorandum attempts to finesse the important
antitrust problem that Walgreens would face in the Hawaii
market--where Longs is by far the largest retail pharmacy--by
dropping a footnote to compensate for a huge factual mistake.
In its footnote, the memorandum acknowledges that "they are
unable to assess" the potential competition concerns regarding
Walgreens' entry into Hawaii "without access to Walgreens'
internal company documents," even though the memorandum
acknowledges elsewhere that Walgreens is in the process of
negotiating its eighth location in Hawaii and has announced
plans to open a total of 25-30 stores in Hawaii over the next
several years.
- Disregard of market share issues resulting from a
Walgreens/Longs combination. The memorandum focuses primarily
upon the FTC's review of the Rite Aid/Eckerd transaction, and
its focus on local markets for the retail sale of pharmacy
services to cash customers in that transaction. In so doing,
the memorandum ignores the huge MSA-level market dominance
that would result from combining Walgreens and Longs in MSAs
throughout California, Nevada, and Hawaii, and fails to
analyze other relevant markets in which such dominance would
be both relevant and problematic.
- Analytically incomplete. The analysis offered by the
memorandum is significantly deficient because it fails
entirely to assess the sale of pharmacy services to third
party payors, which is the market analyzed in previous FTC
actions such as CVS/Revco (1997), J.C. Penney/Thrift Drug
(1996/97), and Rite Aid/Revco (1996). As we know from the
FTC's inquiries regarding the CVS tender offer and the
document request Longs has received in connection with the
Walgreens expression of interest, this market remains a highly
relevant focus of inquiry and concern. The memorandum's claim
that "market share data at the level of metropolitan areas
should not play a meaningful role in the FTC's analysis" of a
Walgreens/Longs transaction is simply wrong.
- Loose definition of competitors. The memorandum plays fast and
loose with its definition of which competitors belong in the
relevant market. The memorandum argues that grocery
pharmacies, pharmacies in mass merchandise stores, and
independent pharmacies should be included in any market share
analysis. Yet the CtW letter accompanying the memorandum
claims that "CVS and Longs together account for approximately
40% market share in a number of metropolitan statistical
areas, including San Diego, Los Angeles, Santa Barbara, Las
Vegas, and Reno," which would only arguably be true if all the
other pharmacy types included in the law firm memorandum were
excluded. When these competing pharmacies are included, a
CVS/Longs combination would not even result in a 35% market
share in any MSA.
- Assertions regarding relevant geographic markets in a
Walgreens/Longs combination are inconsistent with the federal
Merger Guidelines and with precedent. The contours of a
relevant geographic market are defined through a factual
inquiry grounded in empirical data, trade patterns, and
perceptions of the market participants. And in most urban
settings, contrary to the memorandum's claim that "a larger
radius may be more appropriate," geographic markets are often
smaller than in suburban or rural areas.
- Distortion of facts regarding potential timing of an
investigation. The memorandum uses Rite Aid/Eckerd as a
benchmark and claims that the antitrust review took
approximately six and one-half months, from September to
April, when Rite Aid first announced an agreement in principle
with the FTC. However, the FTC did not announce an agreement
and consent decree until June--two months later. The
additional time was required to finish negotiations with the
interested State Attorneys General, who had their own parallel
investigations and their own views as to the appropriate scope
of relief. Further, the memorandum makes no attempt to assess
the interests of, or the timing delays that could be caused
by, the Attorneys General of California, Hawaii, and Nevada in
a Walgreens/Longs transaction.
The Memorandum's Conclusion is Inherently Flawed
In summary, any suggestion that the regulatory risks involved in a
CVS/Longs transaction and those involved in a Walgreens/Longs
transaction are comparable is nonsense. The CVS regulatory review is
over, and no action was required by either the FTC or the State
Attorney General involved. In contrast, the FTC has just commenced a
broad and searching review of the difficult antitrust issues raised by
a potential Walgreens/Longs transaction. The Walgreens proposal
entails meaningful regulatory risk, and regulatory delay is now
certain. The two situations are completely different.
CVS Caremark continues to believe that its offer is a compelling,
certain proposition for Longs shareholders. Our offer has cleared all
regulatory hurdles, is fully financed and ready to close.
About CVS Caremark
CVS Caremark is the largest provider of prescriptions in the
nation. The Company fills or manages more than 1 billion prescriptions
annually. Through its unmatched breadth of service offerings, CVS
Caremark is transforming the delivery of health care services in the
U.S. The Company is uniquely positioned to effectively manage costs
and improve health care outcomes through its more than 6,300
CVS/pharmacy stores; its Caremark Pharmacy Services division (pharmacy
benefit management, mail order and specialty pharmacy); its
retail-based health clinic subsidiary, MinuteClinic; and its online
pharmacy, CVS.com. General information about CVS Caremark is available
through the Investor Relations section of the Company's Web site, at
www.cvscaremark.com/investors, as well as through the press room
section of the Company's Web site, at www.cvscaremark.com/newsroom.
Forward-looking statements
This announcement contains certain forward-looking statements.
These forward-looking statements may be identified by words such as
'believes', 'expects', 'anticipates', 'projects', 'intends', 'should',
'seeks', 'estimates', 'future' or similar expressions or by discussion
of, among other things, strategy, goals, plans or intentions. Various
factors may cause actual results to differ materially in the future
from those reflected in forward-looking statements contained in this
announcement, among others: (1) macroeconomic conditions and general
industry conditions such as the competitive environment for retail
pharmacy and pharmacy benefit management companies; (2) regulatory and
litigation matters and risks; (3) legislative developments; (4)
changes in tax and other laws and the effect of changes in general
economic conditions; (5) the risk that a condition to closing of the
transaction may not be satisfied; and (6) other risks to consummation
of the transaction.
Additional Information and Where to Find It
This announcement is for informational purposes only and does not
constitute an offer to purchase or a solicitation of an offer to sell
Longs' common stock. The tender offer is being made pursuant to a
tender offer statement on Schedule TO (including the offer to
purchase, letter of transmittal and other related tender offer
materials) filed by CVS Caremark with the Securities and Exchange
Commission (SEC) on August 18, 2008. Longs filed a
solicitation/recommendation statement with respect to the tender offer
on Schedule 14D-9 on August 18, 2008. These materials, as they may be
amended from time to time, contain important information, including
the terms and conditions of the offer and Longs' Board of Directors
recommendation of the tender offer, that should be read carefully
before any decision is made with respect to the tender offer.
Investors and stockholders can obtain a free copy of these materials
and other documents filed by CVS Caremark or Longs with the SEC at the
website maintained by the SEC at www.sec.gov. The tender offer
materials may also be obtained for free by contacting the information
agent for the tender offer, Morrow & Co., at (203) 658-9400 or (877)
366-1576 (toll-free). The solicitation/recommendation statement and
related materials may also be obtained for free by contacting (925)
979-3979.
Source: CVS Caremark Corporation
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