Fred's Stock Takes a Hit After Walgreens-Rite Aid End Merger Plan
June 29 2017 - 10:40AM
Dow Jones News
By Ezequiel Minaya
Regional pharmacy chain Fred's Inc. enjoyed a runup in its stock
price and attention after being invited to buy a large chunk of
stores to satisfy antitrust concerns in Walgreens Boots Alliance
Inc.'s plan to buy Rite Aid Corp.
It was, as it turns out, an Icarian climb.
Walgreens said Thursday it planned to buy half of Rite Aid's
stores, instead of buying the company outright and selling 865
stores to Fred's, a move Fred's called a "disappointing outcome."
The retooled deal nixing Fred's involvement stymied the Memphis,
Tenn., company's plans to become a national player in the
sector.
Fred's said Thursday it will be paid a $25 million termination
fee to cover its expenses related to the aborted merger. Shares
tumbled 22% to $9.65, levels not seen since before the spotlight
was fixed on the company by the merger.
The early version of the Walgreens-Rite Aid tie-up would have
more than doubled the size of Fred's, which owned about 650 stores
and had a market capitalization of roughly $400 million before the
December announcement of its involvement in the deal. Shares in
Fred's skyrocketed 81% when news broke about its plans to acquire
865 additional stores for $950 million, financed by pledging nearly
all of its assets -- down to furniture -- to back some $1.65
billions in loans.
"While the acquisition of additional stores was an opportunity
for growth, we always viewed it as a potential outcome that would
accelerate our transformation, not define it," said Michael Bloom,
Fred's chief executive, in prepared remarks Thursday. A call to
Fred's seeking further comment wasn't immediately answered.
Federal regulators were concerned the earlier Walgreens-Rite Aid
deal, which would have married the second- and third-largest U.S.
pharmacy chains by sales, could stymie competition. Divestitures
are often required in large deals to assuage concerns over market
power and consolidation within specific markets and industries.
U.S. regulators had to be convinced, among other concerns, that
Fred's could legitimately replace the competition if Rite Aid
merged with Walgreens.
On Wednesday, Fred's also adopted a poison pill to limit the
ability for investors such as Alden Global Capital LLC, which has a
25% stake in the company, to add to its holdings. The company said
the move was because of "increased trading activity" ahead of
Walgreens's announcement Thursday.
And while the plunge of Fred's stock price was steep on
Thursday, as doubt about the merger began to build, shares had been
deflating slowly almost as soon as they had shot up, falling from
$18.29 at the beginning of January to $14.12 at the start of
June.
Write to Ezequiel Minaya at ezequiel.minaya@wsj.com
(END) Dow Jones Newswires
June 29, 2017 10:25 ET (14:25 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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