Wednesday, August 13, 2008

CVS Bought Longs Drugs Today - LPGA Implications?

I saw this morning on CNBC that CVS had bought out Longs Drugs for about $72/share. That's a 32% premium on yesterday's stock close for Longs. So, CVS REALLY wanted Longs.

But, Longs Drugs is the sponsor of the fall Longs Drugs Challenge - a long standing (12 years now) LPGA Tour event out in California. It has a pretty small purse at $1.25M this year. Will the buyout impact the health of the event?

I don't know for certain, but I could see this going two ways.

(1) The good scenario - CVS already sponsors a charity silly (in) season team event hosted by Billy Andrade and Brad Faxon every year. That means that they're on board for golf. They also sponsor several golfers, including Camilo Villegas. Maybe this would be an opportunity for CVS to expand its golf portfolio and beef up the purse money for the now CVS Challenge to about $2 million. Or, at a minimum, since the company paid such a premium to get Longs, CVS will be willing to honor any sponsorships that Longs was into before the buyout.

(2) The bad scenario - CVS could be struggling as a company. It's stock price is in the middle of its 52 week range. It trades below the P/E rating of the industry. They could just want to suck up Longs to try to build that ratio and cut out some unnecessary fat in the acquisition. That could mean the end of the Longs Drugs sponsorship, then likely, that event.

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