Walgreens Boots Alliance OKs $192.5 million settlement with Rite Aid investors

Walgreens Boots Alliance (WBA) has agreed to pay $192.5 million to settle a more than three-year-old class-action lawsuit claiming Rite Aid investors were misled about regulatory scrutiny of the companies’ 2015 merger deal, according to published reports.

Filed by Rite Aid shareholders in the U.S. District Court for the Middle District of Pennsylvania in November 2018, the suit gained class-action status in January 2020. Investors claimed that, between October 2016 and June 2017, WBA and top executives made “numerous false and misleading statements concerning the level of regulatory risk faced by the original merger and the revised merger.”

That caused Rite Aid shares to inflate in value and later tumble when the merger was scuttled, according to the complaint. “Defendants [WBA] made false and misleading statements downplaying or disputing contrary reports from journalists signaling regulatory turbulence, and representing that inside knowledge of the FTC gave confidence that the deal would close,” Rite Aid investors alleged in the suit.

On Friday, Deerfield, Illinois-based WBA declined to comment to Winsight Grocery Business on the lawsuit settlement, which reportedly came three weeks before it was slated to go to trial.

WBA unveiled a $17.2 billion deal to acquire Rite Aid in October 2015. After over a year of negotiations with the Federal Trade Commission, the companies in January 2017 announced a revised merger agreement that trimmed the cash portion of the deal, reducing its value to around $14 billion. Talks with the FTC continued to make little headway, leading the companies in June 2017 to terminate the merger and unveil a new transaction for Walgreens to buy 2,186 Rite Aid stores. In September 2017, that deal was downsized to 1,932 stores to gain FTC approval.

Related:Rite Aid identifies initial 154 stores for closure under bankruptcy plan

“When defendants’ [WBA] prior misrepresentations and fraudulent conduct became apparent to the market, this caused Rite Aid’s stock price to fall precipitously, as the prior artificial inflation came out of the stock price,” the lawsuit stated. “As a result of their purchases of Rite Aid stock during the class period, plaintiffs and the other members of the class [Rite Aid investors] suffered economic loss.”

For Rite Aid, the result of the abandoned merger was that the drug chain lost over 40% of its store base and competitively fell farther behind much-larger rivals CVS and Walgreens.

Industry observers have pointed to the failed Walgreens merger—and, in August 2018, the termination of a $24 billion merger deal with Albertsons Cos.—as the start of Rite Aid’s recent financial downfall.

Related:What’s left for Rite Aid?

On Monday, Philadelphia-based Rite Aid filed for Chapter 11 bankruptcy protection due to a heavy debt load (approximately $4 billion plus interest), more than 1,600 opioid-related lawsuits and poor financial performance, among other factors. The company reportedly may close 400 to 500 locations under Chapter 11 and divest or shut an uncertain number of stores, and its shares have been delisted from the New York Stock Exchange. Rite Aid so far has identified 154 drug stores in 15 states for closure and put up 99 stores for sale in 12 states under its reorganization plan.

The Walgreens merger-related settlement may not provide much consolation to many Rite Aid investors. In the disclosure statement for Rite Aid’s Chapter 11 plan, filed Oct. 16 in U.S. Bankruptcy Court in New Jersey, current unsecured Rite Aid stockholders would see their shares dissolved, with no compensation. “All existing equity interests in Rite Aid will be cancelled and extinguished, and holders of existing equity Interests in Rite Aid shall receive no recovery on account of such Interests,” the filing stated.