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Right there Fred’s! Drug store stock slumps as Walgreen busts expansion plans

Last updated: 08:33 29 Jun 2017 EDT, First published: 03:33 29 Jun 2017 EDT

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Fred's stock tumbled 20% in pre-market dealing

Fred's Inc (NASDAQ:FRED) dropped around 20% in pre-market dealing as its store expansion plans were cancelled as Walgreens Boots Alliance Inc’s (NASDAQ:WBA) deal with Rite Aid Corp (NYSE:RAD) was redrawn.

The news that Walgreens and Rite Aid would no longer merge, instead a revised deal sees the former acquire just half of the latter’s stores, meant that the concurrent deal for Fred’s to takeover 865 Rite Aid stores was terminated.

Michael Bloom, Fred’s chief executive, nonetheless, told investors that the ‘disappointing outcome’ would have “no impact on the company's transformation strategy or our ability to execute.”

“While the acquisition of additional stores was an opportunity for growth, we always viewed it as a potential outcome that would accelerate our transformation, not define it,” Bloom said.

In pre-market dealing, Fred’s Inc was down US$2.47, 20.05%, changing hands at US$9.85 per share.

Walgreens redraws deal with Rite Aid

The termination of the previously proposed US$9.4bn deal between Walgreens and Rite Aid was reportedly put down to regulatory concerns. In the alternative deal, Walgreens is paying US$5.1bn for 2,186 Rite Aid stores.

The news emerged as Walgreens posted second-quarter adjusted earnings were slightly ahead of Wall Street estimates.

The international pharmacy chain posted net profit of US$1.1bn, or US$1.33 per share – around 3 cents ahead of consensus. Revenues, meanwhile, were around US$400mln ahead of analysts’ median estimates at US$30.1bn.

The company raised the lower end of its guidance for fiscal 2017 by 8c. It said it now expects adjusted diluted net earnings per share of $4.98 to $5.08.

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