Fred’s adopts ‘poison pill’ plan

MEMPHIS, Tenn. — Fred’s Pharmacy on Tuesday adopted a shareholder rights plan, often called a “poison pill,” in an effort to prevent an outside entity from acquiring a majority stake of the retailer.

This initiative was put in place after Alden Global Capital acquired approximately one-quarter of the company’s outstanding shares in just a one-month period from later November to late December.

According to Fred’s 8A filing with the U.S. Securities and Exchange Commission, “Fred’s declared a dividend of one right for each of the company’s issued and outstanding shares of Class A Common Stock, no par value per share. The dividend will be paid to the shareholders of record at the close of business on Jan. 5. Each Right entitles the holder, subject to the terms of the Rights Agreement, to purchase from the company one one-1000th of a share of the company’s Series B Junior Participating Preferred Stock at a price of $100, subject to certain adjustments.”

In effect, this plan activates to dilute Fred’s share count once somebody such as Alden adds to its share count or a new shareholder builds a 10% stake in Fred’s.

According to Fred’s, the plan reduces the chance of someone gaining “control of the company through open market accumulation without appropriately compensating its shareholders for such control or providing the board sufficient time to make informed judgments.”

"The Rights Plan will allow the company to continue to execute on its strategy, which includes completing the proposed acquisition of 865 Rite Aid stores, subject to approval by the Federal Trade Commission, which would make Fred’s Pharmacy the third-largest drugstore chain in the nation," Fred's said in a news release.

Memphis-based Fred’s is expected to acquire 865 divested Rite Aid stores if the Walgreens Boots Alliance-Rite Aid merger is approved by U.S. Government authorities in 2017.