Fred’s Poison Pill Likely Designed for Worst Case RAD/WBA Result; No Indication FTC Will Clear Deal Uncovered
Continue reading for Event Driven's takeaways on Walgreens pursuit of Rite Aid and divestiture buyer Fred's adoption of a poison pill.
Event Driven
Reorg Research
Kent Collier
Founder & CEO
kcollier@reorg-research.com
Tim Gray
Head of Sales
tgray@reorg-research.com
Event Driven Takeaways
•
Fred’s today said it adopted a
short-term shareholder rights plan
, a move widely interpreted as a safeguard in the event that it loses its
opportunity to acquire the to-be-divested stores as is currently planned as part of the RAD/WBA merger and is left vulnerable to an activist investor.
•
That situation arises if either the FTC sues to block the overarching deal and Walgreens either litigates without Fred’s as the divestiture buyer, or
declines to challenge the FTC suit and dissolves the Rite Aid acquisition.
•
In that case, Fred’s shares would fall dramatically and may precipitate an activist play. The shareholder rights plan would now provide
management with some amount of protection and insight into major stakes taken by new shareholders.
•
However, the agreement does not take effect until July 7, when the FTC timing agreement expires, but the scheduled commission vote tomorrow
and the upcoming holiday weekend may lead to an immediate suit and leave Fred’s unprotected.
•
Perhaps still the most likely scenario is that a suit is levied by the FTC to enjoin the transaction, largely informed by
previous reporting
that at least
one commissioner believes Fred’s is an insufficient buyer.
In the run-up to what appears to be a
commission vote tomorrow
on Walgreens
pursuit
of
Rite Aid,
divestiture buyer
Fred’s has adopted a poison
pill that would provide management with insight into major stakes that may be accumulated by an activist investor.
The company has said in its announcement that the move is due to expected volatility in relation to the Rite Aid/Walgreens merger. It is being
interpreted by shareholders and outside advisors as protection against a worst case scenario in which Fred’s loses any chance of acquiring the to-be-
divested assets. In that case, Fred’s shares would decline and create a situation where an activist critical of management could enter the situation.
The shareholder rights plan would, at the very least, provide insight into shareholders that may be building a stake.
The situation becomes bleak for Fred’s if they are dropped from the deal altogether. That would only happen if the FTC sues to block the Rite Aid/
Walgreens transaction and the merging parties opt to dissolve that deal, or challenge the FTC suit but end their asset purchase agreement with Fred’s.
That
asset purchase agreement
expires on June 30 but otherwise could be nullified by a negative outcome from the FTC.
Essentially, Fred’s is left at the mercy of Walgreens if the FTC decides to issue a suit blocking the deal.
However, there remains some possibility the FTC clears the deal as it stands with Fred’s as the divestiture buyer, or that Walgreens decides to fight the
FTC suit with Fred’s in-hand. If Walgreens fights the suit with Fred’s in-hand, Fred’s prospects of acquiring the stores are diminished, but do not totally
vanish.
Meanwhile, it appears Fred’s wrote the agreement to take effect on the same day - July 7 - that the Walgreens-FTC timing agreement expires. However,
the FTC has planned a non-public vote for tomorrow which is widely believed to be the referendum on the overarching merger. If that is the case,
and the FTC vote is indeed to block the deal, it is possible the commission would issue the suit in a more expedited timeline ahead of the holiday
weekend.
If that comes to pass, the shareholder protection plan would do little good to protect Fred’s management against a quick moving activist.
It should be noted however that the FTC generally does not formally file its lawsuit in such a hasty fashion. Historically, the process generally entails a
meeting such as the one scheduled for Thursday where the commissioners will meet and discuss the matter but not vote. The vote is then made on a
“walk-around” basis. This can take a week or so in normal conditions but would clearly be done before the July 7 expiration of the timing agreement
made with the merging parties.
Relevant Documents:
Fred’s Short-Term Shareholder Rights Plan
JUN 28 / 3:18 PM
Fred’s Poison Pill Likely Designed for Worst Case RAD/WBA Result;
No Indication FTC Will Clear Deal Uncovered
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Event Driven
Reorg Research
Kent Collier
Founder & CEO
kcollier@reorg-research.com
Tim Gray
Head of Sales
tgray@reorg-research.com
Neither Fred’s and Rite Aid immediately responded to requests for comment. Walgreens declined to comment except to note its Q3 earnings results
will be released tomorrow.
A recent
news report
citing uninvolved antitrust attorneys has injected some amount of confidence and shares of the involved parties have risen.
However, Event Driven has not uncovered any indications that would alter previous reporting that the deal could not proceed with Fred’s as the buyer,
due to commission-level belief that Fred’s was wholly insufficient.
-- Reuben Miller
Reuben covers merger enforcement actions with a specific focus on
antitrust and national security/foreign investment review. A seasoned
reporter and editor with over 10 years of experience, Reuben previously
ran the D.C. bureau for a Financial Times M&A product and worked at a
boutique law firm on Capitol Hill.
REUBEN MILLER
Senior Editor
Focus
: M&A and Antitrust
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