Shares of Longs Drug Stores Corp. surged as much as 17% on Tuesday on speculation that the company might be acquired by another grocery or drug retailer.
The stock reached a high of $25.60 before closing at $24.12, up $2.23, or 10%, on the New York Stock Exchange. More than 2.9 million of the company's approximately 37 million shares changed hands.
"It has to be takeover speculation," said Franklin Morton, who manages $15 billion in assets at Ariel Capital Management in Chicago, including 5.2 million Longs shares. "I don't think there's any other real news out there about the company."
The Walnut Creek, Calif.-based company operates 470 stores in the Western United States. The company declined to comment Tuesday on takeover speculation and rejected a request by the NYSE for a statement on developments that may be fueling the run-up.
"It is our policy not to comment on rumors or speculation," said Longs spokeswoman Phyllis Proffer. Longs is scheduled to report third-quarter earnings today.
Safeway Inc. of Pleasanton, Calif., and Walgreen Co. of Deerfield, Ill., have been cited as possible buyers. Safeway did not respond to a request for comment, and Walgreen declined to talk.
Grocery companies in recent years have looked to add drugstores to boost sales and complement their core business. Albertsons Inc., for example, owns the Sav-On and Osco chains.
Safeway Chairman and Chief Executive Steven Burd has said that the firm is not in acquisition mode, however, and that it is still struggling to integrate acquisitions made in recent years, including Chicago-area Dominick's Supermarkets Inc.
Safeway, which owns Vons and Pavilions, is being struck by supermarket workers in Southern and Central California. Kroger Co.'s Ralphs and Albertsons have bargained jointly with Safeway and locked out their workers in a show of support.
Longs, which posted $4.4 billion in sales last year, has been thought of as a takeover candidate for years. Its small size has made it harder for the chain to compete with national rivals such as Walgreen, which has $28.7 billion in annual sales.
Some analysts dismissed the stock surge as wishful thinking.
Lisa Cartwright of Citigroup Smith Barney said in a report released Tuesday afternoon that a buyer might want to simply acquire Longs' real estate and other assets.