Recommend Rite Aid (RAD) shareholders defer a decision on the reverse split until after 2020 guidance is released and prepare to make major BOD changes at the July Annual Meeting
Los Angeles, CA -- (SBWIRE) -- 01/30/2019 -- Today Chris Komatinsky released the following open letter to Rite Aid Corporation Shareholders (NYSE: RAD):
Fellow Rite Aid (RAD) Stockholders:
I haven't published a letter to Rite Aid Shareholders since September 30th. Like most of you that I have been talking to and corresponding with, I was disappointed by the results of the October Annual Meeting but hopeful that the large votes of no confidence in the Rite Aid Board of Directors (BOD) (3 incumbent Directors received just 57% of votes FOR reelection including our now Chairman of the Board and the Say on Pay Proposal was rejected with 84% AGAINST) would compel changes in actions to be more shareholder friendly.
Based on recent actions, the message from shareholders was clearly not heard. Rite Aid Executives and the BOD continue implementing shareholder unfriendly actions including actions that protect themselves from being held accountable by shareholders. But first, the state of our Rite Aid company.
Again, the green shoots, PBM growth and Pharmacy prescription sales, get a little taller. Pharmacy front end sales are struggling. Management has provided no detailed strategy on how they are going to turn this around. 3rd quarter Pharmacy front end results (lost sales) and costs were also affected by challenges and costs in moving retained Pharmacy distribution to their new/final retained distribution centers (they had 9 months to plan this and still didn't execute it well). They also signed a new 10 year drug distribution agreement with McKesson that's "an enhancement in value from our current existing contract". Unfortunately, Rite Aid provided no details on this value and the earliest we will get any insight will be in April when Rite Aid provides Fiscal Year 2020 guidance.
The Rite Aid BOD has made three actions since the October Annual Meeting that I consider shareholder unfriendly.
First, the BOD approved 6,000,000 in share grants to Rite Aid Senior Executives based on Fiscal Year 2019 performance. CEO John Standley received a 2,377,000 share grant. COO of Rite Aid Stores Bryan Everett received 481,000 share grant. Rite Aid missed on EBIDTA. Rite Aid wasted $34 million on the Albertsons merger agreement. Rite Aid wasted millions by not executing the transition of Pharmacy distribution effectively. Rite Aid wasted $14 million on a scrapped point of sale software update. Rite Aid failed to convey a complete standalone strategy beyond Bonus Cash and increasing Pharmacy prescription count. Rite Aid stock price plummeted below $1.00. Rite Aid paid out large retention bonuses. Clearly the BOD thinks all the Rite Aid Senior Executives deserve a trophy for just trying. Also, the grant was made based on a share price that may be substantially undervalued with material non-public information on the unknown benefit of the new McKesson drug supply agreement. Shareholders told the BOD that they weren't aligning pay with performance in October. Clearly the message was not received as the trend continues.
Second, the BOD has just rushed a shareholder resolution on whether to authorize a reverse split of Rite Aid stock to maintain the stock listing. The success of the reverse split depends upon Wall Street's assessment of Rite Aid's prospects going forward. Right now this is uncertain in Wall Street's opinion because of a lack of detail on Rite Aid Management's Strategic Plan and the lack of detail on the benefit of the new McKesson deal. There is no need to rush as Rite Aid has 6 months from the early January notice date to cure the $1.00 average price violation and the market will get a chance to assess the benefits of the new McKesson deal when Fiscal Year 2020 guidance is provided in April 2019 with the Q4 FY 2019 results. The reverse split is also a potential tool by Rite Aid Management and the BOD to get the stock ownership into more passive hands that would further entrench them in place. I recommend shareholders abstain from the reverse split vote (non-votes will count against the proposal) and vote FOR the authorization to adjourn the Special Shareholder Meeting to a later date.
Third, the BOD moved up the next annual meeting to July 2019 which provided only a short 2 week window to nominate BOD members after barely 2 months to evaluate whether the BOD was now acting in a more shareholder friendly manner. I provided a BOD nominations for 2 qualified individuals (at least more qualified than the current contingent) 5 days before the submittal deadline but received a rejection from Rite Aid at the close of business on the deadline date for an obscure "you're not a shareholder of record" even though you own Rite Aid shares reason. I plan on appealing to the State of Delaware and SEC, but I'm sure they'll fight as it seems like they're only giving lip service to being more shareholder friendly when in fact they are doing everything they can to remain in control of our company.
Feel free to contact me if you have any questions.
Individual Rite Aid (RAD) Stockholder
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