VOL. 132 | NO. 130 | Friday, June 30, 2017
Fred’s Cut Out of New Walgreens, Rite Aid Deal
By Andy Meek
Walgreens Boots Alliance has struck a new deal with Rite Aid to buy 2,186 of the chain’s stores for $5.18 billion, an agreement that replaces the two rivals’ planned merger. It also nixes the component of the merger involving Memphis-based Fred’s Inc. buying hundreds of Rite Aid stores to help the now-defunct merger pass regulatory muster.
The news comes just two months after Walgreens CEO Stefano Pessina told industry analysts Memphis-based Fred’s Inc. is “the right buyer” of the Rite Aid stores that needed to be divested so Rite Aid and Walgreens could win approval of their merger. It’s also something of a setback for Fred’s, a company that one analyst said may have represented a concern among regulators looking at the proposed merger and questioning whether Fred’s would be a “viable operator.”
That’s according to Nick Mitchell, managing director and research analyst with Northcoast Research. In a note he distributed to clients in the wake of the Walgreens-Rite Aid news, he wrote that “the developments will not change Fred's operating strategy for its legacy stores; however, the growth trajectory will clearly be stunted.”
Investors hammered Fred’s shares in trading Thursday, June 29, sending the stock down a little more than 22 percent for the day. Rite Aid, likewise, closed down more than 26 percent Thursday.
In December, Fred’s CEO Mike Bloom described the potential Walgreens-Rite Aid store buys by Fred’s as a “transformative event” for the company.
In a statement Thursday, he took a different tack, explaining that, “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.
“This is a disappointing outcome; however, the termination of the transaction has no impact on the company’s transformation strategy or our ability to execute. We are as confident as ever that we have a strong team and the right strategy in place to drive long-term growth and profitability, and to enhance value for our shareholders. We are excited about what we have accomplished and are optimistic about the future.”