LDG, Part II: Ackman Pushing For a Higher Price?

With both the Financial Times and the Wall Street Journal running stories in the last 72 hours on Bill Ackman’s alleged behind the scenes financial maneuverings with regards to Pershing’s levered investment in Longs Drugs (LDG), I guess he wants us all to pay attention. After grinding through his 13D filings and the timing of his purchases therein (see portal posting from 8/15), I am officially all in for this show.

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.

Stay tuned…

KM
(charts courtesy of StockCharts.com)

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more