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Rite Aid plans reverse stock split to avoid NYSE delisting

BY DSN STAFF

CAMP HILL, Pa. —Rite Aid will meet with stockholders Dec. 2 in New York to vote on approval of its proposed reverse stock split announced last month, the company informed shareholders in a Nov. 1 letter.

Rite Aid is not alone in recently proposing potential reverse stock splits—the regional amusement park operator Six Flags reportedly is considering a reverse stock split, as is Citadel Broadcasting, the country’s third-largest terrestrial radio operator. Sun Microsystems executed a 1-for-4 reverse split last year.

And while a reverse stock split is generally not good news for any company, at least a few analysts following Rite Aid are not hitting the panic button. “Nothing fundamental to the [Rite Aid] story changes with the split,” noted Jay Carlington, Credit Suisse analyst. “Delisting should not be a problem if the shareholders approve the split.”

Before the reverse stock split announcement, Credit Suisse had estimated Rite Aid’s stock price would more than double in value within a year.

Rite Aid currently trades at 8.2 times Deutsche Banks’ estimates for EBITDA across fiscal year 2009, noted Bill Dreher, a Deutsche Bank analyst, which is just ahead of the drug store industry average, suggesting that there is still some upside to the Rite Aid stock. “We maintain our hold rating on Rite Aid with a $1 trading price,” Dreher wrote in a research note issued the day Rite Aid made its reverese stock split announcement, “which is justified, given Rite Aid’s considerable financial leverage, partly offset by the opportunity to improve margins and profitability over time.”

The reverse stock split, made necessary after the NYSE notified Rite Aid its stock was in danger of being delisted because shares were selling for less than $1 for more than 30 consecutive trading days, will be proposed in a split ratio of either 1-for-10, 1-for-15 or 1-for-20. The actual ratio will be determined by Rite Aid’s board prior to the split. That would reduce the number of shares outstanding to 84.6 million, 56.4 million or 42.3 million, respectively, based on the 845.6 million shares that were outstanding as of Oct. 28.

Rite Aid has until April 2008 to pull its 30-day average per share price above $1. And while the December vote enables Rite Aid’s board to execute that reverse stock split, it does not preclude the company from raising its share prices organically by the deadline.

There is at least one benefit to a reverse stock split—bringing the stock price above $1 makes the stock more attractive to institutional investors, especially if that $1-plus stock price is coupled with news of improving operations going forward, as has recently been the case with Rite Aid. The company’s integration of the Brooks/Eckerd store base now is complete, and those Brooks/Eckerd stores are posting improved comp-store sales trends. And the company recently brought turnaround veteran John Standley—who is well-respected on Wall Street—back into the fold as president and chief operating officer.

Conversely, not having the reverse stock split available as an option may place Rite Aid at a slight disadvantage. With a delisting from the NYSE, Rite Aid could be asked to refinance $158 million of its 8.5 percent convertible notes due 2015 in mid-2009, which could force the retailer into new, less-favorable financing obligations early next year. Of greater importance, a delisting could impact Rite Aid’s ability to refinance its $1 billion revolver, which matures September 2010. Presently, the company intends to refinance that revolver toward the end of 2009 and beginning of 2010.

Of the $6.7 billion in total debt carried by Rite Aid, $4.9 billion does not mature until after 2013, and the chain currently has access to $549 million in revolving credit.

In addition to approving the proposed reverse stock split, shareholders are being asked to decrease the total number of authorized Rite Aid shares from 1.5 billion shares to 520 million shares, a move that would actually increase the number of shares not-yet issued for the chain. That would actually give Rite Aid the flexibility to issue additional stock in the future, to help raise capital for example, and serves as a potential anti-takeover measure. “Although not designed or intended for such purposes, the effect of the proposed decrease in the number of our authorized shares of common stock at a different ratio to the reverse stock split, could enable our board of directors to render more difficult or discourage an attempt to obtain control of Rite Aid, since the additional shares could be issued to purchasers who support our board of directors and are opposed to takeover,” the retailer explained in its proxy.

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Alimentary Health signs licensing agreement with P&G Pet Care

BY DSN STAFF

CORK, Ireland Alimentary Health on Wednesday announced that it has signed a worldwide licensing agreement with P&G Pet Care, makers of two of the worlds leading companion animal pet care products, Iams and Eukanuba.

Under the licensing agreement, Alimentary Health’s and P&G’s proprietary pet care probiotics will be used in P&G Pet Care’s nutritional supplement products. The global market for companion animal pet care products was estimated to be over $40 billion in 2007. Alimentary Health will receive an undisclosed royalty on sales of all products containing the pet care probiotics.

In 2001, Alimentary Health partnered with P&G to develop safe and effective probiotic products for gastrointestinal indications. In 2007, P&G Health Care started using Alimentary Health’s natural probiotic strain Bifidobacterium Infantis 35624, in Align in the US. Align is a daily probiotic supplement that helps build and maintain a strong and healthy digestive system.

“Today’s announcement comes as a result of our continued successful collaboration with P&G,” Barry Kiely, chief executive officer of Alimentary Health, said. “We are please that our ongoing efforts have once again resulted in Alimentary Health’s technology making it to the marketplace. This agreement is a result of a successful research and development program between the two companies and it brings us closer to fulfilling our vision of becoming the worldwide leader in the research, discovery and clinical development of probiotics. We are proud of our long standing association with such a leading multi-national company.”

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Kmart holds GoldK Day health services, screening day for seniors

BY Antoinette Alexander

HOFFMAN ESTATES, Ill. Kmart, a wholly owned subsidiary of Sears Holding Corp., has announced that its pharmacy division will hold the annual GoldK Day on Nov. 18 for seniors.

“Kmart wants to remind seniors that we care about their health and GoldK Day is a way for our pharmacists to give back to these important customers by not only offering free screenings, but assistance with Medicare health plan selection and information about disease states, which can help seniors make better decisions about their healthcare,” Mark Doerr, vice president of Kmart pharmacy, said.

The activities planned for the event, to be held from 9 a.m. to 1 p.m. at all 1,100 Kmart pharmacy locations, include free blood pressure screenings, free memory screenings, Medicare health plan selection assistance and more.

No appointments are necessary. For more information, customers can all 800-866-0086 or visit www.kmart.com/pharmacy.

The initiatives are tied to the efforts of the Alzheimer’s Foundation of America’s National Alzheimer’s Disease Awareness Month, the annual initiative aimed at promoting early detection of memory problems and appropriate intervention.

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