After revealing that it would purchase 865 Rite Aid stores, Fred’s Inc. has adopted a shareholder’s rights plan as an activist investor revealed it had taken a significant position in the retailer’s stock.
In a December 22 filing with the United States Securities and Exchange Commission, Alden Global Capital noted that it had purchased shares in Fred’s that represented 24.8% of the retailer’s outstanding stock. In September, Alden reported taking an almost 10% stake in Pier 1 Imports.
Fred’s stated that its board of directors unanimously adopted the rights plan after noticing unusual and substantial activity involving shares in the company. In adopting the plan, the board determined to ensure that it remains in the best position as regards fulfilling fiduciary duties and to enable all Fred’s shareholders to receive fair and equal treatment. The rights plans also allows all Fred’s Pharmacy shareholders to realize the long-term value of their investment by reducing the likelihood that any person or group might gain control of the company through open market accumulation without appropriately compensating shareholders for such control or providing the board sufficient time to make informed judgments. In addition, the plan ensures that certain default provisions of the company’s credit facilities would not trigger and cause the acceleration of certain debt maturities.
The plan comes into effect only if a person or group acquires beneficial ownership of 10% or more of Fred’s common stock. In that case, each holder of a right other than the acquiring person or group can purchase, at the then-current exercise price, additional shares of common stock having a market value of twice the exercise price of the right. At the same time, the acquiring company or individual’s rights would become void and not exercisable. The plan would grandfather any existing shareholder or group that has beneficial ownership of 10% or more of the company’s common stock at its current ownership level. However, the rights would become exercisable if, at any time after the announcement of the rights plan, such shareholder or group increases its ownership of the company’s common stock.
At any time after any person or group acquires beneficial ownership of 10% or more of the company’s Class A common stock, the board may exchange each right, other than rights owned by such acquiring person or group— which will have become void— in whole or in part, at an exchange ratio of one share of Class A common stock per outstanding right, subject to adjustment.
