Wrong on Longs…

Shortly before CVS Caremark (CVS) announced that it was buying Longs Drugs (LDG) for $2.9 billion on Tuesday, I spotted this story, which had Credit Suisse analyst Edward Kelly downgrading the stock because it was overvalued, in part due to merger speculation. According to the Associated Press, Kelly wrote in the research note that the share price already reflected a “best case scenario” of a deal and that “underlying fundamentals have deteriorated and numerous hurdles to a transaction remain.”

On Tuesday, the same day the report was issued, the stock closed at $54.04. CVS is paying around $71.50, which makes this a pretty bad call for Kelly. But a pretty good one for Pershing Square’s Bill Ackman, who according to calculations by The Deal stands to make around $466 million on the deal, in part through the use of cash-settled total return swaps, which Ackman disclosed in this filing from earlier today.

There’s one other interesting thing about Longs. As footnoted regulars know, I consider it something of an obsession to try and find signs of M&A deals in advance. But Longs — unlike a lot of other companies — provided none of the tell-tale signs that I normally look for.

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