The FT is citing someone “close to the matter” and the WSJ a “person familiar with the situation”. This kind of super secret rumor whispering is not unlike that which investors have had to endure with both of Ackman’s latest unsuccessful attempts at pushing his own book with both Border’s Group (BGP) and Target (TGT). As reference points, charts for both TGT and BGP are below.
It would be one thing if I was a reporter, it’s entirely another in this case however because I have invested in all 3 of the aforementioned companies for multi-billion dollar hedge funds in the past. I have had multiple one on one meetings with all of the senior management teams of the these companies – I know the assets and the players who analyze them.
Interestingly, when my partner and I drove up to Long’s Drugs headquarters in California for the first time in 2004, the stock was almost -75% lower than where Ackman is allegedly suggesting is not high enough today. The stores are now older, and the economy weaker.
At, $71.99/share, Longs (LDG) is trading at a premium to the proposed CVS takeout price. Why is that? Who leaks these creative “financial maximizations of shareholder value” into the market place? Who gets paid the most if it all comes to fruition? Who invests other people’s money this way?
These are all critical questions. So is addressing the two bull cases that someone out there with a levered financial incentive wants you to consider – so let’s put the analytical pants on and take a walk down that path.
1. Walgreens (WAG) coming in with a higher bid than CVS’s
2. Blackstone (BX) signing off on Ackman’s alleged, and magically creative, real estate idea
I don’t think either are reasonable options for reasonable investors to consider in economic times like this.
On the Walgreens side of the ledger there are 3 reasons I can start you off with: 1. Valuation – the implied valuation for LDG above deal price approaches 10.5x cash flow, and WAG trades for 9x (ttm) EBITDA – no way WAG pays this price, 2. CA store overlap and antitrust approval is far too cumbersome, and 3. the core Longs Drug store formats are round holes compared to WAG’s proverbial square pegs – store conversions make no sense; they would dilute WAG’s unit level productivity and return metrics.
On the Blackstone front, we are still speaking with our contacts this weekend in order to get more insight. The bottom line however is that Ackman has retained Blackstone in the past. This is not new. This is what he does. I have seen this movie before. Be sure that he pays Blackstone plenty of money to “think” about creative ways to get him out of his buying Target (TGT) at both an economic cycle top, and leverage cycle top.
CVS shareholders better be following the bouncing ball very closely here.
(charts courtesy of StockCharts.com)