Here's Why Rite Aid Corporation Surged Again Today

Fred's Pharmacy's new poison pill is fueling hopes antitrust regulators will allow Rite Aid to merge with Walgreens Boots Alliance.

Cory Renauer
Cory Renauer
Jun 28, 2017 at 4:47PM
Health Care

What happened

Shares of Rite Aid Corporation (NYSE:RAD) surged 5.4% higher on Wednesday in anticipation of good news. The FTC is expected to issue its decision about whether or not it will attempt to block Rite Aid's merger with Walgreens Boots Alliance (NASDAQ:WBA) on Thursday, and a recently enacted poison pill by Fred's, Inc. (NASDAQ:FRED) is lifting hopes the deal will go through.

So what

Walgreens Boots Alliance was already the largest chain of retail pharmacies in the U.S. before it announced its intention to acquire Rite Aid Corporation more than 20 months ago. To satisfy antitrust regulators, the pair agreed to allow a third party, Fred's, Inc. to purchase some Rite Aid stores.

Excited investor in front of a rising stock chart.

Image source: Getty Images.

Wednesday morning, Fred's Pharmacy announced that its board of directors adopted a short-term shareholder rights plan. According to the plan, the company is issuing a right to purchase additional shares of Fred's common stock at a 50% discount if a person or group acquires 10% or more of the company's common stock.

This anti-takeover strategy is more commonly known as a poison pill, and Fred's insists that it's been enacted in anticipation of increased trading activity when the FTC announces its decision regarding the Walgreens acquisition of Rite Aid.

Now what

The temporary poison pill doesn't necessarily mean the deal will go through. However, the company has stated that it's working closely with both companies and the FTC to see the deal succeed, and investors are viewing the board's unusual action as a hint the FTC won't try to stop the deal.

Although Wednesday's news and the CTFN report on Monday have pushed Rite Aid stock price about 27% higher this week to $3.98, it's still far below the $7 per share acquisition price Walgreens agreed to previously. The FTC is expected to announce its decision Thursday, although it could wait longer. If it gives the thumbs up, Rite Aid shares could tack on another 75% gain overnight.