Bill Ackman Scores $600 Million From CVS-Longs Merger

Hedge funder Bill Ackman, who astutely shorted bond-insurer MBIA, has made another profitable bet, increasing his stake in CVS shortly before its deal with Longs Drug Stores was announced.

The Deal: William Ackman’s Pershing Square Capital Management LP stands to rake in considerable gains following the news late Tuesday, Aug. 12, that Longs Drug Stores Corp. has agreed to be acquired by CVS Caremark Corp. for $71.50 per share, or $2.9 billion including debt.

According to an Aug. 5 13D filing to the Securities and Exchange Commission, Ackman’s hedge fund acquired a roughly 8.8% stake in Longs in common stock between the end of June and the end of July, paying between $40.47 and $45.92 per share. He boosted his stake in the company to 23.6% through total return swap arrangements, which will allow him to boost his returns on his initial 8.8% investment of roughly $136.6 million. The swaps allow Pershing to benefit from any upward stock movement, but excludes voting rights. Based on the $71.50 per share value of CVS’ bid, Ackman’s 23.6% stake would be worth roughly $603 million if the sale were to close.

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