September 8, 2008
THEY ARE BOTH RIGHT FOR THE WRONG REASONS
Analysis of:
Longs Property Is A Wild Card | online.wsj.com
This analysis is solely the work of the author. It has not been edited or endorsed by GLG.
Implications: Might the $2.61 billion CVS purchase of LDG come undone due to a dispute over real estate values? How does one gauge the value of LDG's real estate? GLG readers want to know.
Analysis: As regular readers of GLG News and this authors "Blog" will quickly realize, both the WSJ writer and LDG's largest stakeholder, hedge fund Advisory Research, HAVE MISSED THE POINT!
First of all the debate over real estate values can be easily resolved! LDG owns 100 of their 500 stores. There is a simple formula to determine the exact value of these stores. (Any interested party should contact this GLG Leader)
Next, the value of the remaining 400 stores that supposedly have "below market" leases, can also be determined rather easily by any reasonably well schooled retail real estate expert. There is no need for a lawsuit to determine real estate values but I suspect it might be in Advisory Research's interest to try to delay the deal using the poorly understood real estate value issue as an excuse.
Finally, the real reason behind this "tempest-in-a-teapot is probably more closely linked to the hoped-for entry of another bidder and a consequently higher price, than it is related to any serious expectation of the real estate being undervalued.
In my opinion the "below market" leases and the actual value of the owned stores is already clearly reflected in LDG's bottom line! Furthermore, this has been true for many years. The only meaningful way that bottom line will be improved is by CVS proving to be a better operator of these freakishly large drug stores than LDG has been.
Analysis: As regular readers of GLG News and this authors "Blog" will quickly realize, both the WSJ writer and LDG's largest stakeholder, hedge fund Advisory Research, HAVE MISSED THE POINT!
First of all the debate over real estate values can be easily resolved! LDG owns 100 of their 500 stores. There is a simple formula to determine the exact value of these stores. (Any interested party should contact this GLG Leader)
Next, the value of the remaining 400 stores that supposedly have "below market" leases, can also be determined rather easily by any reasonably well schooled retail real estate expert. There is no need for a lawsuit to determine real estate values but I suspect it might be in Advisory Research's interest to try to delay the deal using the poorly understood real estate value issue as an excuse.
Finally, the real reason behind this "tempest-in-a-teapot is probably more closely linked to the hoped-for entry of another bidder and a consequently higher price, than it is related to any serious expectation of the real estate being undervalued.
In my opinion the "below market" leases and the actual value of the owned stores is already clearly reflected in LDG's bottom line! Furthermore, this has been true for many years. The only meaningful way that bottom line will be improved is by CVS proving to be a better operator of these freakishly large drug stores than LDG has been.
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