During Fred's Pharmacy's third quarter earnings call with analysts Thursday, Pat Watson, the chain's investor relations executive, told analysts that no questions would be taken due to ongoing discussions of a “pending transaction.”
Fred’s CEO Mike Bloom on the call also noted that “acquisition and partnership activity will play an integral role to accelerate our growth strategy,” further fueling speculation that a deal with Walgreens is in the pipeline.
Fred’s Pharmacy is a discount store and drugstore chain operating primarily in the South. It managed to hang on after the arrival and dominant rise of Sam’s Walton’s Wal-Mart Stores retail effort, and now has a mix of company and franchise stores, with more than 650 discount general merchandise stores, including 350 store and pharmacy locations.
But Fred's continues to feel the pressure of competition from Wal-Mart and dollar stores, and is in the midst of a turnaround. One strategy that emerged under former CEO Jerry Shore and that is now continued by Bloom (the former Family Dollar CEO and CVS executive) is an effort to expand pharmacy operations, including healthcare services. Last year Fred's acquired Nashville-based private pharmacy retailer Reeves-Sain Drug Store and its EntrustRX specialty prescription distribution company.
“We have already learned through our acquisition of Entrust and Reeves-Sain that expanding our reach and our portfolio of goods and services is a main driver of growth,” Bloom said Thursday. “We are actively focused on finding the right opportunities that will leverage the experience of this leadership team and our core competencies in retail pharmacy and specialty pharmacy.”
Finding an entity to take some 500 to 1,000 stores is essential to Walgreens’ and Rite Aid’s sealing their proposed $9.4 billion merger. The companies in October announced an extension to the deal, which had been expected to be finalized by the end of the year. Pending approval from the Federal Trade Commission, the companies now expect the transaction to close in early 2017.
Hesitation from the Kroger grocery chain regarding its potential purchase of 650 Rite Aid stores previously put the merger in doubt. The FTC threw a wrench into Kroger’s plans when regulators told the supermarket chain that it wouldn’t be allowed to close Rite Aid stores and integrate them into Kroger locations.
The delays and complications have changed Walgreens’ tune: While CEO Stefano Pessina, known for his appetite for expansion, once downplayed antitrust concerns or divestiture requirements, executives there now say they could close as many as 1,000 stores.
Fred’s executives Thursday didn’t name Walgreens or Rite Aid as parties in their discussions, and noted to analysts that “There can be no assurance that the transaction will take place.”