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Rite Aid (RAD) Picks 1-for-20 Reverse Stock Split Ratio

Zacks Equity Research

Rite Aid Corporation RAD moves closer to regaining compliance under the New York Stock Exchange’s (“NYSE”) listing rules as the board of directors approved a 1-for-20 reverse split ratio. The company received shareholder approval for the reverse split on March 21 at a special meeting of shareholders. The shareholders then voted for 1-for-20 ratio from proposed reverse stock split ratios of 1-for-10, 1-for-15 or 1-for-20 that were announced on Jan 27.

Rite Aid's shares will start trading on a split-adjusted basis on Apr 22. The reverse split is estimated to reduce the company’s outstanding shares to 54 million from the current 1.08 billion. Rite Aid notes that no fractional shares will be issued as part of the split. Stockholders entitled for fractional shares will instead receive a cash payment from transfer agents, which will be a pro rata share of the total proceeds from the sale of aggregate fractional shares.

As already stated, the primary objective of conducting the reverse split is to retain compliance with the NYSE listing rules.

Background

Rite Aid has been witnessing ups and downs in the recent past, after two failed mergers with Walgreens WBA and Albertsons, and other operational issues. The company’s lower stock led to non-compliance of listing rules of NYSE. Rite Aid may regain compliance under the NYSE listing rules if its share price stays at least $1.00 and it maintains average closing price of at least $1.00 in the past 30 trading days during the six-month cure period or on Jul 3, 2019 — the end of the six-month cure period. Until then, the company’s shares will be listed and continue to trade on the NYSE.

Notably, shares of this Zacks Rank #2 (Buy) stock has lost 65.2% in the past year, significantly wider than the industry’s decline of 13.1%.

 


Efforts to Turnaround Operations

As part of the turnaround initiatives, Rite Aid announced a leadership transition and organizational revamping plan on Mar 13. These changes are expected to help the company become a more profitable one by better aligning operations and minimizing operating costs.

Rite Aid’s leadership transition plan will include slashing managerial layers and consolidating job positions. Apart from the exit of certain top executives, the company will eliminate roughly 400 full-time employees. Nearly two-thirds of these layoffs will take place immediately and the remainder by the end of fiscal 2020. Notably, layoffs will affect above 20% of corporate jobs at its headquarters and field operations.

Rite Aid anticipates generating annual cost savings of nearly $55 million on account of these restructuring actions. Of this, the company expects to realize approximately $42 million savings by fiscal 2020. Moreover, it expects to incur roughly $38 million as one-time restructuring charges. Management expects these savings to compensate for the anticipated decrease in income related to the reduced obligations under the Transition Services Agreement with Walgreens.

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