New bidding strategy? Bowing out

Two would-be suitors — Bristol-Myers and Walgreen — walked away from attractive targets this and avoided potentially costly bidding wars at a time of difficult deal financing and daily hits to the financial markets.

Although Bristol-Myers and Walgreen walked away from their respective deals for different reasons, the decision to bow out marks a sign of caution by even strategic buyers in the nervous economy.

Bristol-Myers on Monday walked away from its offer to acquire the 83-percent of ImClone Systems it did not already own after Eli Lilly and Co trumped its bid with a $6.5 billion deal. Bristol-Myers decided against counter-bidding and instead cashed in its 17-percent stake in ImClone for about $1 billion.

Meanwhile, Walgreen on Wednesday withdrew its $75 per share cash offer to acquire Longs Drug Stores, avoiding a bidding war with Longs’s existing merger partner CVS Caremark.

Walgreen said it decided to walk away due to the recent deterioration in the economy, Longs’s refusal to hold merger talks, and the uncertainty of leaving its bid in limbo for an extended period of time.

At a time when arbitrage spreads on deals that already have committed financing continue to remain wide, perhaps avoiding costly bidding wars and bowing out is a smart move?