LDG Longs Drug Stores Corp

WALNUT CREEK, Calif., Sept. 17 /PRNewswire-FirstCall/ -- Longs Drug Stores Corporation ("Longs") (NYSE:LDG) today announced today that its Board of Directors, after careful consultation with its legal and financial advisors, determined not to furnish information to, nor have discussions and negotiations with, Walgreens (NYSE:WAGNASDAQ:WAG) which had sent Longs an unsolicited, non-binding expression of interest announced on September 12, 2008. In making its determination, the Longs Board of Directors considered, among other factors, the following: -- Walgreens previously reviewed the potential for a transaction with Longs and was not and is not now proposing to accept inherent regulatory risks; -- Walgreens has not presented a clear roadmap to completion; -- Walgreens is not proposing to compensate Longs stockholders for delays in consummating a transaction; -- Walgreens assumes limited antitrust risk and does not provide comparable certainty of consummation to the CVS Caremark transaction; and -- The Walgreens expression of interest is non-binding, conditioned on diligence and is not financed. Longs cautioned that Walgreens has given no assurances that the expression of interest will result in a transaction with Longs, at the price set forth in the expression of interest or otherwise. Longs' Board of Directors continues to recommend to its stockholders that they accept the tender offer by CVS Caremark and tender their shares of Longs in that tender offer. Below is the full text of the letter that Longs sent to Walgreens: September 17, 2008 VIA FACSIMILE Mr. Jeffrey A. Rein Chairman and CEO Walgreen Co. 200 Wilmot Road, MS 2264 Deerfield, IL 60015 Dear Mr. Rein: We have received and reviewed Walgreens' non-binding expression of interest in purchasing Longs, as set forth in your letter dated September 12, 2008, and your request that you be provided with diligence information to pursue this interest. After carefully considering your expression of interest with our outside financial and legal advisors, our Board of Directors has determined not to furnish information to, nor have discussions and negotiations with, Walgreens. In making its determination, the Longs Board considered a number of factors, including those described below: -- Walgreens has previously reviewed the potential for a transaction with Longs and was not and is not now proposing to accept the inherent regulatory risks. In connection with Walgreens' prior consideration of a transaction with Longs, your counsel received confidential diligence information to evaluate the antitrust risks presented by a potential transaction and had discussions with our counsel and management. Following your counsel's review of this information, you and I, along with our respective outside counsel, had several conversations in which we were all aware of the potential regulatory concerns presented by a transaction between Walgreens and Longs. At that time, you stated that Walgreens was not willing to assume the antitrust risks associated with a potential transaction with Longs. -- Walgreens has not presented a clear roadmap to completion. Given the regulatory risks associated with a Walgreens-Longs transaction, it is unlikely that any transaction between Walgreens and Longs could be consummated without undue delay, and there is a possibility that a transaction could not be consummated at all. Moreover, you have not presented any strategy or timetable to obtain regulatory approval. Assuming regulatory approvals could be obtained, we estimate that the approval process could take 9 to 12 months. -- Walgreens is not proposing to compensate Longs stockholders for the delays in consummating a transaction. Your expression of interest indicating a potential offer of a fixed $75 per share in cash does not compensate Longs stockholders for this potential lengthy delay. As you know, our transaction with CVS Caremark has already obtained all required regulatory approvals. -- Walgreens' limited assumption of antitrust risk does not provide the certainty of consummation compared to the CVS transaction. Your proposal to divest Longs stores (and not Walgreens stores) representing up to 40% of Longs' consolidated operating profit does not provide Longs stockholders with the certainty of consummation presented by the CVS Caremark transaction, which has already obtained all required regulatory approvals. Walgreens is second only to Longs in the number of pharmacy counters operated in Northern California and approximately 63% of Longs' mainland counters are within 2 miles of a Walgreens' location. Walgreens has also announced its intention to aggressively expand its presence in Hawaii, an area where Longs is currently the largest operator of pharmacy counters by a wide margin. Longs' consolidated operating profit for fiscal 2008 was $164.6 million, accordingly 40% of that number is $65.8 million. After consulting with our outside counsel, we estimate that the operating profit of the stores at risk of divestiture could easily exceed this number by a substantial margin, assuming a transaction is approvable. For example, following a Longs-Walgreens transaction, the combined entity would operate over twice as many pharmacy counters in Northern California as Rite Aid, the nearest remaining competitor. In both Northern California and a number of significant metropolitan markets in which the combined company would operate it would have market shares well above 40%. -- The Walgreens expression of interest is non-binding. As you noted, your letter did "not create or constitute any legally binding obligation" and was not accompanied by an executable merger agreement or other document pursuant to which Longs could accept your proposal. Moreover, you have stated that Longs would be required to terminate its existing merger agreement before Walgreens will enter into a merger agreement, exposing Longs' stockholders to the possibility that Longs could terminate the CVS transaction and never reach agreement with Walgreens. -- The Walgreens expression of interest is conditioned on diligence and is not financed. Your expression of interest was conditioned on due diligence of both Walgreens and your real estate investors. Neither the scope nor the duration of this due diligence exercise was described. Additionally, your expression of interest was not accompanied by financing commitments that would enable our Board and stockholders to evaluate Walgreens' ability to consummate a transaction. Accordingly, our Board of Directors has determined that it is not in the best interests of Longs and its stockholders to furnish information to, nor have discussions and negotiations with, Walgreens and the Board has determined to continue to recommend to its stockholders that they accept the tender offer by CVS Caremark and tender their shares of Longs in that tender offer. Very truly yours, /s/Warren F. Bryant Warren F. Bryant Chairman, President and Chief Executive Officer Wachtell, Lipton, Rosen & Katz is acting as legal advisor to Longs, and JPMorgan is acting as financial advisor. About Longs Drug Stores Headquartered in Walnut Creek, California, Longs Drug Stores is one of the most recognized retail drug store chains on the West Coast and in Hawaii. The Company operates 521 retail pharmacies and offers a wide assortment of merchandise focusing on health, wellness, beauty and convenience. Longs also provides pharmacy benefit management services and Medicare beneficiary prescription drug plans through its wholly-owned subsidiary, RxAmerica, LLC. Additional information about Longs and its services is available at http://www.longs.com/ and more information about RxAmerica is available at http://www.rxamerica.com/. 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, the risks that the expression of interest from Walgreens will not result in a transaction with Longs, at the price set forth in the expression of interest or otherwise, regulatory and litigation matters and risks; risks that conditions to closing of the Company's transaction with CVS may not be satisfied and other risks to consummation of the Company's transaction with CVS, including the risk that the transaction will not be consummated within the expected time period. 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. The solicitation/recommendation statement and related materials may also be obtained for free by contacting (925) 979-3979. For Longs Drug Stores: Joele Frank / Steve Frankel / Jamie Moser Joele Frank, Wilkinson Brimmer Katcher (212) 355-4449 DATASOURCE: Longs Drug Stores Corporation CONTACT: Joele Frank, Steve Frankel, Jamie Moser or Joele Frank, all of Wilkinson Brimmer Katcher, +1-212-355-4449, for Longs Drug Stores Web site: http://www.longs.com/

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