Financial AccountingCase Presentation Presented by: Alexis Kushner Christopher Serio Howsen Wang
CVS Caremark & Longs Drugs 6,300 locations nationwide. Ranked 24th on Fortune 500 List. Increased net revenues, gross profits, and earnings from continuing operations in quarter ending 9/27/08. 521 locations throughout west coast and Hawaii. 70-Year History, Opened First Store in Oakland in 1938. Fiscal 2008 – Closed all 23 stores located in Washington, Oregon, and Colorado.
Real Estate Contested in Longs-CVS Deal CVS offers Longs $71.50 per share on August 12th. CVS values Longs property at $1 billion Total acquisition offer = $2.9 billion. Longs shareholders skeptical that property is appropriately valued. They doubt CVS is offering full market value. Longs admits that no third-party appraised value of company’s owned real estate, ground leases, or leaseholds. Shareholders file lawsuits and go to SEC demanding Longs supply valuation information on real estate.
September Developments 4th – Longs refused to give shareholders specific real estate asset values. Shareholders sue. 11th – Longs agrees to settle shareholders lawsuit and will provide information in the future. 15th – Walgreens offers Longs a surprise bid of $75/share. 18th – Longs turns down the offer from Walgreens.
October Developments 9th – Walgreens gives up on pursuing Longs. 17th –Primary shareholders of Longs accept original CVS offer which was made in August. Coincidentally, CEO of Walgreens resigns.
Did Longs Violate Shareholder Obligations? GAAP: Market Valuation of Assets Does not permit firms to write up the book value when market values increase. SEC: Investigated the case and found no fraudulent activity. Case was dismissed. Shareholder lawsuit: Longs’ fiduciary responsibility is to act in the best interest of shareholders. This did not happen. One of the lawsuits was regarding a golden parachute for Longs CEO and receiving Caremark Corp board member benefits.
Resolution Longs agrees to more disclosure of financial records and the CVS offer in order to settle the lawsuit and appease shareholders. CVS acquires Longs for $2.9 billion. Perhaps, the shareholder should have done their legal research.