Longs deal makes CVS king of Calif.
WOONSOCKET, R.I. —CVS Caremark’s planned acquisition of Longs Drug Stores opens the door for CVS Caremark to become the king of California, with 830 stores in the state (excluding store closures). As a whole, CVS/pharmacy, the store division, grows to 6,800 locations in 41 states and the District of Columbia—including Hawaii, where CVS inherits more than half of the pharmacy market—and will fill or manage more than 1.2 billion prescriptions per year.
CVS Caremark plans to buy for $2.9 billion, including debt, Longs Drug Stores’ 521 retail locations in California, Hawaii, Nevada and Arizona, as well as its PBM services.
The transaction, which is subject to review under the Hart-Scott-Rodino Act and has other customary closing conditions, is expected to be completed in the fourth quarter of 2008.
As part of the deal, which is for $71.50 per share in cash, CVS Caremark will bolster its already strong PBM business by acquiring Longs’ Rx America subsidiary, which offers prescription benefit management services to more than 8 million members and prescription drug plan benefits to approximately 450,000 Medicare beneficiaries. Management plans to integrate Rx America with Caremark over time.
Most important, the deal takes CVS to the top of the pack in one of the most important states in the country, and in some of the toughest real estate markets. Those markets also give CVS Caremark important added heft in the eyes of employers and big healthcare payers.
In a conference call with analysts to discuss the deal, Tom Ryan, CVS Caremark chairman, president and chief executive officer, said, “First and foremost, the acquisition accelerates our expansion into central and northern California and Hawaii. These are highly attractive regions of the country where we are not currently represented and they have very difficult real estate markets to penetrate. Second, with the addition of these markets, we will now have filled some very important markets that will be particularly valuable to our PBM clients as we roll out our new Proactive Pharmacy offering. Lastly, Longs’ successful PBM, Rx America, and its stand-alone PDP business will complement our Caremark business.”
More than 490 of the stores CVS Caremark is acquiring are located in the Central and Northern California and Hawaiian markets, where Longs is a leading player. The stores in the Hawaiian market will continue to operate under the Longs name.
While CVS Caremark’s entrance into Hawaii is significant, its expansion into California also is important. The company first entered California with a specialty pharmacy in 1999. It then established a retail pharmacy presence in the state with 19 retail pharmacies in 2004. In 2006, it significantly expanded its footprint in California to 366 locations through the acquisition of Albertsons of the Sav-on pharmacies.
“Longs’ store network in these regions is excellent and is one that would take a decade or more for CVS to replicate through organic growth,” Weinswig said.
About 470 of the stores it is acquiring average roughly 22,000 to 23,000 square-feet in size. The remaining Longs stores are smaller in size and range between 4,000 to 7,000 square feet, and are located namely in or near medical centers and, according to Ryan, represent an opportunity for specialty pharmacy locations.
Meanwhile, Longs’ PBM business, which will complement the Caremark business, generates about $380 million in annual revenues, including the PDP lives, Ryan said.