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Fred’s institutes ‘poison pill’ plan

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Move comes after hedge fund became retailer's largest shareholder

Freds store at night_featured

MEMPHIS, Tenn. — Fred’s Inc. has adopted a shareholder rights plan, also known as a “poison pill,” after a hedge fund recently became the company’s single largest shareholder.

Fred’s said Tuesday its board instituted the shareholder rights plan after observing “unusual and substantial activity in the company’s shares.” The discount and pharmacy retailer noted that the move wasn’t in response to a specific takeover bid or proposal to acquire control of the company but followed an evaluation and consultation with the company’s advisers.

The announcement of the rights plan came a week after Fred’s said it entered an agreement with Walgreens Boots Alliance Inc. and Rite Aid Corp. to buy 865 Rite Aid stores for $950 million in connection with the pending Walgreens-Rite Aid merger.

“Fred’s Pharmacy’s commitment to driving shareholder value remains steadfast through a focused growth strategy relying on four key pillars: retail pharmacy expansion, specialty pharmacy, front-store growth and lucrative acquisitions and partnerships,” Fred’s said in a statement. “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 drug store chain in the nation.”

Alden Global Capital LLC on Dec. 22 filed a Form 13D with the Securities and Exchange Commission after having purchased 9.275 million shares of Fred’s common stock since Nov. 28, giving it a 24.8% stake in the company.

In the filing, Alden indicated that it believed Fred’s shares “are undervalued and represent and attractive investment opportunity.” The fund also disclosed its intention to “engage in discussions with the issuer’s management and board of directors, other stockholders of the issuer, and other interested parties regarding, without limitation, the issuer’s recently announced agreement to acquire 865 stores and certain assets of Rite Aid Corp. as well as the issuer’s operating performance, capital allocation, governance, board composition and strategic plans.”

Fred’s filed its shareholder rights plan with the SEC on Dec. 27. In the 8A filing, Fred’s declared a dividend of one right per share for holders of its Class A common stock that entitles them to buy one 1,000th of a share of its Series B Junior Participating Preferred Stock for $100, subject to certain adjustments. The dividend will be paid to the shareholders of record at the close of business on Jan. 5. The plan becomes exercisable if a person or group acquires beneficial ownership of 10% or more of the company’s common stock.


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