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VOL. 132 | NO. 25 | Friday, February 3, 2017

Fred’s Could Buy More Rite Aid Stores

By Andy Meek

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Fred’s Inc. may end up buying more than the 865 Rite Aid stores it’s already planned to acquire as part of the merger of two drugstore chains.

Walgreens and Rite Aid may need to divest more stores to satisfy regulatory concerns as a result of the merger they announced in December. Even so, Memphis-based Fred's - which has already said it would buy 865 Rite Aid stores as a result of the deal - has reaffirmed it will buy more if needed.

(Daily News File/Andrew J. Breig)

In December, Memphis-based Fred’s said it would buy those 865 stores from Walgreens Boots Alliance Inc. and Rite Aid Corp. on the heels of Walgreens working to satisfy regulatory concerns for its purchase of Rite Aid. Since then, the two chains have said they may divest more stores to overcome concerns from regulators.

And both Walgreens and Fred’s affirmed this week that if that larger divestiture happens, Fred’s likely will end up scooping up even more stores.

“Fred’s Pharmacy affirms that the asset purchase agreement it entered into on December 19, 2016 with Walgreens and Rite Aid remains in effect,” Fred’s announced Tuesday, Jan. 31, in a statement about the Walgreens-Rite Aid deal, which has now been pushed out to July 31. “As previously disclosed, to the extent the Federal Trade Commission requests that additional stores be sold, and Walgreens agrees to sell such stores, Fred’s Pharmacy has agreed to buy those stores.

“The amendment and extension of the Walgreens-Rite Aid merger agreement reinforces the company’s confidence that the transaction is in the mutual best interest of Fred’s Pharmacy and all of its shareholders. Fred’s Pharmacy continues to work with the FTC, Rite Aid and Walgreens to complete the transaction, and looks forward to realizing the considerable benefits the transaction will bring to customers, patients, payers, supplier partners, team members and shareholders.”

A Walgreens spokesman likewise told Bloomberg in recent days the arrangement with Fred’s – to buy more stores if regulators require the combining companies to divest more – remains intact. Bloomberg also reported that Walgreens’ plan hasn’t yet won antitrust clearance from FTC officials.

For Fred’s, meanwhile, the commitment to buying more stores if necessary is one piece of a multipronged, massive turnaround plan underway at the company.

In addition to increasing its presence via buying the Rite Aid stores, Fred’s officials also said in December that 2017 would be characterized by several new initiatives, including big investments in technology as well as new stores.

The company is continuing to move away from its history as a general discount retailer, with CEO Mike Bloom describing “personal health care” and the pharmacy side of Fred’s business as its future. Among other efforts, the company is in the process of remodeling stores to help improve traffic, and it plans to release a mobile app in the first half of this year that will enhance the pharmacy experience for patients.

A relocation of the company’s Memphis headquarters also remains underway. Fred’s told The Daily News in December it’s considering multiple possibilities within a few miles of its current location.

Fred’s chief financial officer Rick Hans said this week, about the progress on that front, “We continue to review multiple sites.”

In other news, Fred’s total sales for January slipped a little – dropping 5.6 percent year over year to $148.1 million from $156.9 million in January 2016. However, Bloom said that comparable sales for Fred’s specialty pharmacy business “trended positive” in January, reflecting efforts to diversify the company’s specialty offering.

Fred’s front store dragged sales down, a reflection of lingering challenges. Nevertheless, Bloom said company leaders “continue to take a long-term view of our business and the opportunities ahead as a significant provider of health care services and value merchandise in the markets that we serve.”

PROPERTY SALES 62 288 2,619
MORTGAGES 52 197 1,783