Rite Aid shares climb above $1 — major hurdle cleared for No. 3 drug chain
NEW YORK Rite Aid has been fighting off the delisting of its shares trading on the New York Stock Exchange since September, and although the company had the approval of its investors to execute a reverse-split in its back pocket, certainly that was a card management didn’t want to play if it could avoid it.
Analyst opinion is split on the reverse-split. There are those that believe that the move, by instantly inflating the price per share, can make the stock more attractive to some investors, particularly, institutional investors who tend to shy away from stocks that trade under a certain price. But the result is purely cosmetic and certainly doesn’t change the fundamentals of a company.
“Reverse stock splits are often used by companies that realize that having a low stock price is optically not very attractive,” RBC Capital Markets analyst Gerard Cassidy told The New York Times in March regarding a potential Citigroup stock split. “It does not pretend to say that the company has improved but optically it looks better on investors’ screens or in the newspaper.”
Others believe that the reverse-split sends a negative message to investors, one of desperation. “Investors typically freak out over reverse stock splits,” noted The Motley Fool in a May 6 report on General Motors’ planned reverse split. “There are a few success stories — like priceline.com — but most of the reversers — Sun Microsystems, for instance — are trading lower today.
“On paper, it shouldn’t make a difference,” Rick Aristotle Munarriz, a regular Motley Fool contributor, continued. “It’s an even exchange. However, just as investors often bid up companies that declare forward stock splits based on optimistic assumptions, it’s only natural to coat reverse stock splits with pessimistic assumptions. Until we get a few more Pricelines in the winner’s circle, that is unlikely to change.”
The best news for Rite Aid is that for now, it does not have to test Wall Street’s theories on the reverse-stock split. Back in March, NYSE issued a temporary suspension of its minimum share-price listing rule, giving Rite Aid more time to regain compliance. Under the terms of the agreement to suspend NYSE’s minimum listing rule, at this point Rite Aid must maintain an average closing price of $1 for the 30 day-period ending June 30.
So far so good for Rite Aid, since its shares climbed back above $1 in May 11 trading. Its shares closed that day at $1.06, and reached a high for the week of $1.15 the following day. Its shares slipped a bit Wednesday and Thursday, closing at $1.09 and an even $1, respectively, and finished the week at $1.04.
Target proxy battle heats up as annual meeting approaches
MINNEAPOLIS With Target Corp.’s annual meeting fast approaching, directors of the upscale discount store giant have launched a direct appeal to its shareholders asking for their support in a looming proxy battle for control of the company.
Target chairman, president and CEO Gregg Steinhafel released an open letter to company shareholders Thursday, reminding them of the upcoming annual event May 28 and urging them to re-elect Target’s current slate of directors. Steinhafel also asks the company’s stockholders to reject the demands made by dissident shareholder William “Bill” Ackman, a venture capitalist who is founder and CEO of investment and hedge fund firm Pershing Square.
The letter marks the latest salvo in a battle for control of the 1,698-store chain between Target’s board and Ackman, who has reportedly accumulated roughly 10% of Target’s shares and has waged a long campaign for representation on the company’s board of directors.
Ackman is attempting to win shareholder support for a major change in Target’s strategy and the makeup of its board. An activist investor known to be impatient with the company’s stock-growth performance, he gained notice earlier in the decade for his occasionally successful attempts to wield influence and build shareholder value at McDonald’s, Wendy’s and Ceridian after building shareholder stakes in those firms.
Ackman said he intends to nominate five representatives for election to the board at the May 28 meeting. That announcement, made earlier this year, came after negotiations between the two sides broke down following a nearly two-year series of discussions over the use of Target’s assets to drive up shareholder value, particularly over the company’s real estate holdings and its credit card business.
Ackman is seeking to force Target’s board to squeeze more value from its real estate holdings – since many Target stores sit on land owned by the company – through sale-leaseback arrangements. He has also reportedly argued for a spin-off of the company’s credit card business.
Both moves, Pershing Square asserts, would raise Target’s stock price, boost long-term value for shareholders and renew management’s focus on core retail activities.
In his letter Thursday, Steinhafel sharply countered those assertions and reaffirmed his support for Target’s current slate of directors, four of whom are up for re-election this month.
“Target’s nominees are part of a board and management team that have together devised the strategy that has built Target into one of the most successful retailers in the United States,” he asserted. “Target’s nominees, Mary N. Dillon, Richard M Kovacevich, George W. Tamke and Solomon D. Trujillo, are an integral part of a successful board and management team.
“We believe Pershing Square has presented no plan or strategy to justify a change,” Steinhafel added. Indeed, he told shareholders, “It appears that Pershing Square has launched its proxy contest because Target rejected [its] risky real estate proposal after careful evaluation.”
Noting that Ackman’s investment firm “presented a series of real estate proposals to Target,” Steinhafel elaborated on those proposals in his appeal to shareholders Thursday.
“Pershing Square asked Target to consider the IPO and subsequent spin-off of a separate publicly traded real estate investment trust that would own substantially all of the land currently owned by Target,” he wrote. “It was only when Target, after careful review, rejected Pershing Square’s risky real estate proposal that Pershing Square initiated its proxy contest.”
AAFES to open convenience store on Rhode Island base
DALLAS The Army and Air Force Exchange Service will begin serving state No. 50 next week with the opening of a convenience store at the Rhode Island National Guard Air Base, the military retailer announced Tuesday.
“Until the Quonset Point Shoppette’s grand opening in June, AAFES will continue serving troops in approximately 30 countries and 49 states,” stated AAFES’ chief of corporate communications Lt. Col. William Thurmond. “Identifying the one state we didn’t have a facility in made for an interesting trivia question, but we’re excited about the opportunity to support military families in the North Kingstown area as well as the troops stationed at Quonset Point.”
The convenience store at the Rhode Island National Guard Air Base, scheduled to open on May 19, will begin as a modest operation, offering a variety of snacks, cold beverages ,as well as health and beauty items.
“We have high hopes for the Rhode Island National Guard Air Base exchange,” Thurmond said. “This facility is not just for those drilling or working at the base, it’s also for the retiree, Reserve and Guard Families who live around the installation. Their support will be critical to the future success of the exchange benefit in Rhode Island.”