According to a filing with the Securities and Exchange Commission, Fred’s is increasing its revolving loan commitment to $225 million from $150 million. Among other provisions, the Feb. 2 SEC filing said “the amendment contemplates that up to $15 million of borrowings under the revolving loan facility may be used in connection with the acquisition of up to 10 Rite Aid stores pursuant to the terms of that certain asset purchase agreement, dated as of Dec. 19, 2016, by and among the company [Fred’s], Rite Aid Corp. and Walgreens Boots Alliance Inc.”
Fred’s on Dec. 19 announced a $950 million cash deal to purchase 865 Rite Aid stores to be divested for antitrust clearance of Walgreens Boots Alliance’s planned acquisition of Rite Aid. The agreement with the discount retailer is subject to Federal Trade Commission approval as well as WBA’s completion of the Rite Aid transaction and other customary closing conditions.
Also under the terms of the agreement, Fred’s could be required to buy additional stores if the FTC calls for WBA to divest more stores than was contemplated when the deal with Fred’s was struck in December.
That scenario appears to be in the offing. On Jan. 30, WBA and Rite Aid extended the end date for the acquisition deal, lowered the purchase price and raised the number of stores that could be divested from up to 1,000 to as much as 1,200. Later that day, Fred’s issued a statement that its agreement to buy the Rite Aid stores remains in effect.
“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,” Fred’s stated. “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, payors, supplier partners, team members and shareholders.”
With the Rite Aid locations, Fred’s would become the third-largest U.S. drug chain, with 1,227 pharmacies in its 1,509 stores overall. However, published reports recently said the FTC has expressed concerns about the WBA-Rite Aid store divestitures to Fred’s. That includes whether the financially challenged Fred’s could digest the purchase — which involves more stores than it now operates — and be a viable competitor in the drug store marketplace going forward.
Last week, Fred’s reported declined revenue and same-store sales for its fiscal 2016 fourth quarter and full year. January sales and comparable-store sales also decreased year over year. Currently, the retailer has 644 discount general merchandise stores in 15 Southeast states, including 362 in-store pharmacies. The company also operates three specialty pharmacy-only locations.