updated 10/8/2008 8:04:19 PM ET 2008-10-09T00:04:19

Drugstore chain Walgreen Co. has withdrawn its $2.8 billion bid to acquire Longs Drug Stores, apparently helping to ease the path for Longs’ $2.7 billion acquisition by CVS Caremark Corp.

Longs had already accepted CVS Caremark Corp.’s lower bid of $71.50 per share, a deal already approved by antitrust regulators.

Walgreen Chief Executive Jeffrey Rein sent a letter to Longs’ board of directors informing them of Walgreen’s decision to withdraw its bid. He cited what he called Longs’ board’s refusal to “engage in a constructive dialogue” as well as the broad financial meltdown as reasons for the withdrawal.

Some had questioned whether Walgreen would face antitrust issues because of overlap between its West Coast stores and Longs’. Longs said on Sept. 26 that the Federal Trade Commission was investigating whether a Walgreen acquisition would reduce competition among retail pharmacies in parts of California, Nevada and Hawaii, where Longs has most of its stores.

Some Longs shareholders have criticized the CVS deal, saying it may undervalue Longs’ real estate.

Major shareholder Advisory Research has not decided if it will tender its shares in favor of the CVS bid but has questioned the deal. Another major shareholder, Pershing Square Capital Research, has said it is against the CVS deal. The two firms combined own about 18 percent of Longs shares, and the deal requires approval from shareholders owning two-thirds of Longs stock.

Longs, based in Walnut Creek, Calif., has more than 500 stores, mostly in California, but also in Hawaii, Nevada and Arizona. The company also owns Rx America, a prescription benefits management program with more than 8 million members.

The deal would give CVS, which already has a large presence in Southern California, a deeper foothold into the northern part of that state.

Messages left with representatives of Longs and CVS were not immediately returned.

Shares of Deerfield, Ill.-based Walgreen rose 7 cents to $26.25 in after-hours trading following the announcement, while Longs shares fell $2.48 to $69.20. Shares of Woonsocket, R.I.-based CVS were unchanged after-hours after rising 71 cents to $29.84 in the regular session.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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