Fred’s, Inc. Amends Short-Term Shareholder Rights Plan to Protect the Ability to Utilize Net Operating Losses
September 18 2017 - 7:00AM
Business Wire
Fred’s, Inc. (the “Company”) (NASDAQ:FRED) today announced that
its Board of Directors (the “Board”) has acted to protect the
Company’s valuable net operating loss carryforwards (“NOLs”) by
amending and extending the Company’s existing shareholder rights
plan which was set to expire on September 25, 2017 (the
“Amended Rights Plan”).
The purpose of the Amended Rights Plan is to protect shareholder
value by preserving the Company’s ability to use its NOLs and
certain other tax assets (“Tax Benefits”) to offset potential
future taxable income and reduce federal income tax liability. The
Company’s ability to use its Tax Benefits would be substantially
limited if it experiences an “ownership change” as defined in
Section 382 of the Internal Revenue Code of 1986, as amended (the
“Code”). A company generally experiences such an ownership change
if the percentage of its stock owned by its “5-percent
shareholders,” as defined in Section 382 of the Code, increases by
more than 50 percentage points over a rolling three-year period.
The Amended Rights Plan is intended to reduce the likelihood of an
ownership change under Section 382 of the Code by deterring any
person or group from acquiring beneficial ownership of 4.9% or more
of the Company’s outstanding common stock. The Company had
approximately $35.0 million in NOLs as of January 28, 2017, and
incurred additional losses during the first half of the current
fiscal year.
The changes to the Amended Rights Plan include (i) decreasing
the exercise price for the right to $35.00, (ii) extending the
plan’s expiration date from September 25, 2017 to September 18,
2020 and lowering the beneficial ownership threshold for a person
or group to become an “acquiring person” under the plan from 10% to
4.9%. Under the Amended Rights Plan, if any person or group
acquires 4.9% or more of the outstanding shares of common stock of
the Company without the approval of the Board, there would be a
triggering event causing significant dilution in the ownership
interest of such person or group. Any existing shareholder or group
that beneficially owns 4.9% or more of the Company’s common stock
will be grandfathered at its current ownership level, but there
would be a triggering event if at any time after the announcement
of the Amended Rights Plan such shareholder or group increases its
ownership of the common stock of the Company by one share or
more.
The Amended Rights Plan, which takes effect immediately, will
continue in effect until September 18, 2020, subject to earlier
expiration in specific circumstances. The Company intends to submit
the Amended Rights Plan to a vote at the next annual meeting of
shareholders in 2018. If shareholders do not approve the Amended
Rights Plan, it will be terminated.
The Amended Rights Plan, which was adopted by the Board
following evaluation and consultation with the Company’s advisors,
is similar to NOL shareholder rights plans adopted by numerous
publicly traded companies with significant NOLs seeking to protect
shareholder value by utilizing such tax benefits.
Further details regarding the Amended Rights Plan are contained
in a Form 8-K filed by the Company with the U.S. Securities and
Exchange Commission on September 18, 2017.
Evercore is serving as financial advisor to the Company. Akin
Gump Strauss Hauer & Feld LLP and Baker, Donelson, Bearman,
Caldwell & Berkowitz, P.C. are serving as legal counsel.
Forward Looking Statements
Comments in this news release that are not historical facts are
forward-looking statements that involve risks and uncertainties
that could cause actual results to differ materially from those
projected in the forward-looking statements. A reader can identify
forward-looking statements because they are not limited to
historical facts or they use such words as "outlook," "guidance,"
"may," "should," "could," "believe," "anticipate," "plan,"
"expect," "estimate," "forecast," "goal," "intend," "committed,"
"continue," or "will likely result" and similar expressions that
concern the Company's strategy, plans, intentions or beliefs about
future occurrences or results. These risks and uncertainties
include, but are not limited to, those associated with the
Company's announced strategic plan, the success of announced
acquisition activities and future growth trends in businesses
acquired; general economic trends; risks related to the possibility
that the transactions may not close, including because one or more
closing conditions to the transactions, including certain
regulatory approvals, may not be satisfied or waived, on a timely
basis or otherwise, including that a governmental entity may
prohibit, delay or refuse to grant approval for the consummation of
the transactions, or may require conditions, limitations or
restrictions in connection with such approvals; the risk that the
businesses and acquired stores, as applicable, will not be
integrated successfully; the risk of litigation and/or regulatory
actions related to the proposed transaction; changes in consumer
demand or purchase patterns; delays or interruptions in the flow of
merchandise between the Company's distribution centers and its
stores or between the Company's suppliers and same; a disruption in
the Company's data processing services; cyber-security threats;
costs and delays in acquiring or developing new store sites; and
the factors listed under "Risk Factors" in the Company's most
recent Annual Report on Form 10-K and any subsequent quarterly
filings on Form 10-Q filed with the Securities and Exchange
Commission. Forward-looking statements speak only as of the date
made. The Company undertakes no obligation to release revisions to
these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unforeseen
events, except as required to be reported under the rules and
regulations of the Securities and Exchange Commission.
About Fred’s, Inc.
Tracing its history back to an original store in Coldwater,
Mississippi, opened in 1947, today Fred’s Inc. is headquartered in
Memphis, Tennessee, and operates 601 general merchandise and
pharmacy stores, including 14 franchised locations, and three
specialty pharmacy-only locations. With a unique store format and
strategy that combines the best elements of a value-focused
retailer with a healthcare-focused drug store, Fred’s stores offer
more than 12,000 frequently purchased items that address the
everyday needs of its customers and patients. This includes
nationally recognized brands, proprietary Fred’s label products,
and a full range of value-priced selections. The Company has two
distribution centers, one in Memphis, Tennessee, and Dublin,
Georgia.
For more information about the Company, visit Fred’s website at
www.fredsinc.com.
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version on businesswire.com: http://www.businesswire.com/news/home/20170918005325/en/
Fred’s, Inc.Jason Jenne, 901-238-2787Executive Vice President,
Chief Financial Officer and SecretaryorJoele Frank, Wilkinson
Brimmer KatcherEd Trissel / Steve Frankel / Dan
Moore212-355-4449
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