CVS Caremark (CVS) Cites Several Inaccuracies in Antitrust Memo Submitted to Longs (LDG) Board

October 3, 2008 8:54 AM EDT
CVS Caremark Corporation (NYSE: CVS) 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; Overgeneralization of store overlaps; False statements regarding CVS intention to enter Hawaii market; Inaccurate assessment of Walgreens' antitrust concerns in Hawaii; Disregard of market share issues resulting from a Walgreens/Longs combination; 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); Loose definition of competitors. The memorandum plays fast and loose with its definition of which competitors belong in the relevant market; Assertions regarding relevant geographic markets in a Walgreens/Longs combination are inconsistent with the federal Merger Guidelines and with precedent; and 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. [SM]

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