Photos: Fred's Pharmacy, Getty Images
Recent reports suggest that the Federal Trade Commission (FTC) has yet to approve the merger between Walgreens Boots Alliance and Rite Aid over concerns that the companies' plan to divest up to 1,200 stores may not work. The FTC is worried that Fred's Inc., the regional discount chain that has agreed to buy the locations, may not be up to it.
Fred's, which currently operates more than 650 stores primarily in the southeastern U.S., agreed last year to acquire 865 Rite Aid locations. When the FTC balked at the number of stores Walgreens and Rite Aid were divesting, the companies identified more than 300 others to sell. Reported concerns the FTC had about Fred's ability to finance the deal, which were high when the store count was 865, have only increased.
The FTC is still smarting over a decision in 2014 to allow Haggen — a then 18-store supermarket chain with stores in Oregon and Washington — to acquire 146 stores from Albertsons and Safeway in Arizona, California and Las Vegas. As industry watchers know, Haggen was not up to the task. The grocer was forced to sell off most of the properties it agreed to acquire and filed for bankruptcy in 2015. Last year, Albertsons struck a deal to acquire the chain and the 29 remaining stores Haggen was operating in the Pacific Northwest. Today, there are fewer stores operating under the Haggen banner than in 2014.
Rick Hans, Fred's CFO, told analysts on the chain's earnings call yesterday that the deal, which is being completely financed with debt, was manageable. Fred's would "have less leverage than the current Rite Aid today," he said. "So, I think we’d be in a position to reinvest in stores to make them very competitive in their individual markets."
While not substantiated elsewhere, the New York Post reported yesterday that Fred's has been approached by "more than one prominent investor" willing to put money into the regional chain to make its deal with Walgreens and Rite Aid a reality.