Shares of Fred’s Inc. (FRED) tumbled more than 20 percent in pre-market trades Thursday after the company’s agreement with Walgreens Boots Alliance Inc. (WBA) and Rite Aid Corp. (RAD) to purchase 865 stores was terminated.
The termination of the deal comes after Rite Aid and Walgreens Boots said they have mutually agreed to terminate their previous agreement under which Walgreens was to acquire all the outstanding shares of Rite Aid.
Instead, Rite Aid has now agreed to sell 2,186 Rite Aid Stores, related distribution assets and inventory to Walgreens for $5.175 billion in cash. The stores are primarily located in the Northeast, Mid-Atlantic and Southeastern regions of the U.S.
Under the terms of the deal, Rite Aid has the option to purchase generic drugs that are sourced through an affiliate of Walgreens at cost, substantially equivalent to Walgreens for a period of 10 years.
The decision to terminate the Rite Aid-Walgreens merger deal comes after feedback received led the two companies to believe that they would not have obtained the Federal Trade Commission or FTC’s clearance to consummate the merger. Following cancellation of the deal, Rite Aid will receive a termination fee of $325 million from Walgreens in cash.
Fred’s will receive $25 million as reimbursement for expenses associated with the terminated transaction. The company noted that termination of the asset purchase deal will have no impact on its transformation strategy.
In December 2016, Fred’s said it signed an asset purchase agreement with Walgreens and Rite Aid to purchase 865 stores and certain other assets.
The transaction to sell Rite Aid stores to Walgreens has been approved by the boards of directors of both companies and is expected to close within six months. Rite Aid will use the proceeds to reduce its debt and strengthen its balance sheet.
Following completion of the transaction, Rite Aid will continue to operate EnvisionRx, its pharmacy benefit manager, RediClinic and Health Dialog.
Rite Aid also reported a loss for the first quarter that widened from last year and was impacted by changes in differed taxes as well as wider loss on sale of assets.
Meanwhile, Walgreens Boots reported a 5 percent increase in profit for the third quarter from last year.
FRED closed Wednesday’s trading at $12.32. In Thursday’s pre-market activity, the stock is down $2.47 or 20.05 percent to $9.85.
RAD is currently down $0.87 or 22.04 percent to $3.06 in pre-market trades. Meanwhile, WBA is trading at…