The law firm of Brower Piven has announced a class action lawsuit in connection with the proposed acquisition of drugstore.com by Walgreen (WAG), one of the largest retail pharmacy chains in the US. The lawsuit has been filed by all the shareholders of drugstore.com in the Delaware Chancery Court.
The complaint claims that the Board of Directors of drugstore.com infringed the state law while entering into a definitive merger agreement with Walgreen on March 24, 2011.
Under the deal, Walgreen agreed to take over the online retailer, drugstore.com for $3.80 in cash per share, a 113 percent premium on the closing stock price of drugstore.com’s common stock on the last trading day prior to the agreement and a 102 percent premium over its 30-day average closing stock price. This represented a transaction value of approximately $409 million.
However the legal notice alleges that the terms of Walgreen’s deal fail to satisfy maximization of shareholder value. It states that the proposed trading price actually represents a premium little ahead of drugstore.com’s summer stock high of $3.34 per share and a discount to prior year’s trading price.
Additionally it also claims that the directors of drugstore.com have entered into the deal in order to fulfill their own interest with secured benefits as well as to strengthen their positions within the company.
Although the matter is subjudice, it might have a negative impact on the reputation of Walgreen if it is proved in the court. Moreover, it may delay the closing of the transaction which is expected by the end of June 2011. We believe this might even lead to further enquiry.
Presently, Walgreen is aiming to use its cash balance strategically to enhance its business prospects. Leveraging on its strong cash balance, the company is well equipped to pursue many suitable acquisitions in future.
Moreover, earlier in March, the company decided to sell its pharmacy benefit management (PBM) business to Catalyst Health (CHSI) for $525 million in cash. Subsequent to this deal, Walgreen will be able to better focus on its 7,700 drug stores.
However Walgreen has been impacted over the past few quarters by high unemployment levels and lower discretionary spending. Moreover, the company faces steep competition in the drug store retail market from CVS Caremark Corporation (CVS) and Wal-Mart Stores Inc. (WMT).
We have a Neutral recommendation on the stock, which also corresponds to a Zacks #3 Rank (Hold) in the short-term.
CATALYST HEALTH (CHSI): Free Stock Analysis Report
CVS CAREMARK CP (CVS): Free Stock Analysis Report
WALGREEN CO (WAG): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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