Fred's grand opening, Baton Rouge, LA, Dec., 2013 - Photo: Fred's
In a surprise, Fred’s Inc., the Tennessee-based operator of general merchandise stores and pharmacies, stepped in to acquire 865 Rite Aid stores.
Plans for the sale, which is expected to commence on the completion of the $9.4 billion mega-merger between Walgreen's and Rite aid, should help the parties move through the regulatory process.
For Fred’s, the deal will more than double its store count to make it the third-largest drugstore chain in the U.S. Fred’s has 647 discount general merchandise stores and three specialty pharmacy-only locations in 15 southeastern states. On Tuesday, shares of Fred’s vaulted $9.04, or 81.8 percent, to $20.19, in over-the-counter trading on the news.
"This will be a transformative event for Fred's Pharmacy that will accelerate our healthcare growth strategy,” said Fred's Pharmacy CEO Michael Bloom in a statement. “We believe that this transaction will also create tremendous opportunities for both our new and existing front of store and pharmacy team members.”
Fred’s has largely overhauled its management team over the last two years, including bringing in several hires from Walgreen’s and CVS. Mr. Bloom joined Fred’s last year as COO and president, the same titles he held at Family Dollar Stores. He was promoted to CEO in August.
“We believe the purchase of these stores will not only complement recent investments in our team members, processes, and technological infrastructure, but also positively impact our business and maximize shareholder value," said Mr. Bloom.
Fred’s paid only $950 million in cash for the locations and the acquired stores are expected to be accretive to earnings and generate substantial cash flow. Fred’s may also acquire additional locations to support the merger of Walgreen’s and Rite Aid. Rite Aid has 4,600 stores in total.