CVS Caremark Corp. yesterday said a sale of Longs Drug Stores Corp. to Walgreen Co. poses potential antitrust problems because of the ongoing expansion in Hawai'i by Walgreen.

CVS issued the statement in defense of its pending purchase of Longs, specifically to refute an antitrust risk analysis commissioned by a shareholder advisory firm. That analysis said a deal between Walgreen and Longs would pose no insurmountable antitrust problem.

Longs' directors in August accepted a CVS offer to buy the company for $2.7 billion, and in September rejected a subsequent competing bid from Walgreen of $2.8 billion.

Some Longs shareholders have advocated for the Walgreen deal, but Longs has stuck with CVS in part because of what it said are potential risks to completion of a deal with Walgreen.

CVS said a regulatory review of the CVS/Longs deal is over, and that no action was required by the Federal Trade Commission.

CVS also said federal review of a potential Walgreen/Longs combination has begun, and that it believes greater market dominance in California, Nevada and Hawai'i would be produced from a Walgreen/Longs combination — and that would raise risks in pursuing such a deal.

"CVS Caremark continues to believe that its offer is a compelling, certain proposition for Longs shareholders," CVS said in a statement. "Our offer has cleared all regulatory hurdles, is fully financed and ready to close."

Advisory firm CtW Investment Group, which works with some large pension funds, has said the CVS offer undervalues Longs.

Last week, CtW released an antitrust analysis that suggested a Walgreen/Longs deal would not create any insurmountable antitrust issues.

But the analysis neglected to substantially assess whether regulators might view a Walgreen deal as eliminating competition in Hawai'i. Walgreen is building several stores on O'ahu but has only one presently open. The company announced plans to open 25 to 30 stores in Hawai'i — with as many as possible next to Longs stores.

CVS has no major drugstores in Hawai'i, though it does operate one specialty pharmacy in the state.

Longs operates about 520 stores in four states, including 39 in Hawai'i.

CVS operates about 6,300 stores. Walgreen operates about 7,000 stores.

Yesterday, shares of Longs stock closed at $73.80, down from $74.14 on Thursday and $75.53 on Wednesday.

The offer by CVS would pay $71.50 per share for Longs, while Walgreen's offer is $75 a share.

Since the Walgreen bid, Longs stock has traded as high as $76.31 (on Sept. 16), in anticipation that CVS would raise its offer.