Several Hedge Funds Get Hurt as Rite Aid Deal Folds

  • Rite Aid, Fred’s plunge after Walgreens deal scrapped Thursday
  • As of April 24, Alden held 24% of Fred’s shares outstanding

Walgreens Trims Rite Aid Deal to Stores Over Chain

Rite Aid Corp.’s merger with Walgreens Boots Alliance Inc. has gone up in flames, burning some hedge funds in the process.

Walgreens announced Thursday it would scrap the takeover of the drugstore rival after a host of antitrust problems dogged the year and a half-long saga. Two of the biggest casualties: Rite Aid and Fred’s Inc., a smaller chain that stood to gain 1,200 divested stores as part of the deal.

The death of the drugstore acquisition was particularly painful for hedge funds managers, many of whom count the two smaller companies among their holdings. Hedge funds held 26 percent of Rite Aid’s outstanding shares and 32 percent of Fred’s, according to March 31 13F filing data compiled by Bloomberg. That compares to 8.3 percent for the average company in the Russell 1000 Index.

Rite Aid was down 29 percent to $2.81 at 2:31 p.m. in New York, headed for the biggest daily loss in a decade. Fred’s dropped 22 percent to $9.63, putting it on pace for the biggest daily loss since the stock’s debut in 1992.

Those with the most to lose include New York-based Alden Global Capital LLC, which held 9.3 million shares of Fred’s -- a 24 percent stake -- as of April 24. Its biggest stakeholder, Alden purchased the bulk of those shares in December, when Fred’s was trading around $20 a share. Since then, that position would have lost about half its market value.

Holders of both Rite Aid and Fred’s, as of March 31, include Adage Capital Partners LP and David Einhorn’s Greenlight Capital LLC, though Einhorn said he trimmed his Rite Aid position on a May 3 conference call.

Other top hedge fund holders of Rite Aid include $12 billion Highfields Capital Management LP and Pentwater Capital Management LP.

Along with Alden, top holders of Fred’s include JPMorgan Chase & Co.-owned Highbridge Capital Management LLC.

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