Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Hering v. Rite Aid Corp.

United States District Court, M.D. Pennsylvania

July 11, 2018

JERRY HERING, individually and on behalf of all other similarly situated, Plaintiffs,
v.
RITE AID CORPORATION, et al., Defendants.

          MEMORANDUM & ORDER

          John E. Jones III United States District Judge

         Plaintiff Jerry Hering brings this action against Defendants Rite Aid Corporation, John T. Standley, David R. Jessick, Joseph B. Anderson, Jr., Bruce G. Bodaken, Kevin E. Lofton, Myrtle S. Potter, Michael N. Regan, Frank A. Savage, Marcy Syms (collective, the “Rite Aid Defendants”), and Walgreens Boots Alliance, Inc., Stefano Pessina, and George R. Fairweather (collectively, the “Walgreens Defendants”). Presently before the Court are two Motions to Dismiss Plaintiff's Amended Complaint filed by the Rite Aid Defendants, (Doc. 89), and the Walgreens Defendants, (Doc. 93). For the reasons that follow, we shall grant the Rite Aid Defendants' motion and deny the Walgreens Defendants' motion.

         I. FACTUAL BACKGROUND

         Plaintiff brings this action based on alleged false or misleading statements made by the defendants during the class period of October 27, 2015, to June 28, 2017. Plaintiff alleges the following facts in his Amended Complaint, which we assume to be true.

         On October 27, 2015, Rite Aid and Walgreens jointly announced that they had entered a merger agreement (the “original merger agreement”) under which Walgreens would purchase Rite Aid for $9.00 per share in cash. (Doc. 83, ¶ 2). As part of the original merger agreement, Rite Aid directors would be permitted to rollover most of their options and their restricted stock and performance units into Walgreens stock. (Id. at ¶ 3). The value of this equity rollover ranged from approximately $120, 000 to $25 million. (Id.). In the press release announcing the proposed merger, Defendant Standley stated that the merger would provide “significant value” to Rite Aid shareholders. (Id. at ¶ 64). The press release further noted that the companies expected to close the transaction “in the second half of calendar 2016.” (Id.).

         Days later, Rite Aid filed Form 8-K with the United States Securities and Exchange Commission (“SEC”), which attached a “script” for meetings with Rite Aid associates, as well as talking points and a FAQ section. (Id. at ¶ 65). The attachments to the Form 8-K reiterated that the original merger agreement would provide shareholders with “significant value.” (Id.). The attachments also noted that, although Rite Aid could not “speculate on the decisions of any regulatory agency, ” both companies had “extensive consultation with anti-trust counsel, and based upon the complementary nature of the market profiles of both companies, and the amount of pharmacy counters in the U.S., we do not believe the combination should cause regulatory concern.” (Id. at ¶ 66). In the event that the merger encountered regulatory issues, the script explained, then the original merger agreement provided that “Walgreens Boots Alliance can divest some stores if needed to obtain FTC approval.” (Id. at ¶ 65). The original merger agreement, in fact, provided for a divestiture of up to 1000 stores. (Id. at ¶ 67). During a presentation to the Credit Suisse Healthcare Conference on November 10, 2015, a Walgreens officer stated, with respect to the store divestitures, that they “believe that it's probably about half that number. We don't really know, but we believe that's probably the right number.” (Id. at ¶ 67; Doc. 99, Ex. 11, p. 3).[1] Defendant Fairweather repeated the 500-store expected divestiture at a Morgan Stanley Global Consumer & Retail Conference on November 17, 2015. (Doc. 83, ¶ 67; Doc. 99, Ex. 2, p. 3) (noting that they “have to go through the regulatory process. We're anticipating that store divestitures will be less than 500, although our contract provides for up to 1, 000, but we don't anticipate that will be the case. But clearly we will have to work with the relevant authorities as we go through this.”).

         On December 18, 2015, Rite Aid filed a proxy with the SEC and mailed the same to shareholders on December 28, 2015, seeking shareholder approval for the original merger agreement. (Doc. 83, ¶ 69). The proxy highlights various factors leading the Rite Aid Board to recommend approval, including “[t]he fact that the $9.00 all-cash per share merger consideration will provide certainty of value and liquidity to Rite Aid stockholders. . . .” (Id.). On that note, the proxy specifies that the consideration would represent “a premium of: 48% to Rite Aid's closing price as of October 26, 2015, the last trading day prior to the date on which public announcement of the execution of the merger agreement was made; and 44% to Rite Aid's thirty (30) calendar day volume weighted average price as of October 26, 2015.” (Doc. 101, Ex. A, p. 62). The proxy also highlighted Walgreen's commitment to obtaining antitrust approval and assumption of the risks, as well as “the commitment to sell up to 1, 000 stores of Rite Aid or [Walgreens] . . . .” (Doc. 83, ¶ 69) (alteration added).

         The proxy listed numerous potentially negative factors that the Rite Aid Board considered, including “the risk that other regulatory agencies may not approve the merger. . . . The risk that the merger could be delayed or not completed. . . . [and] The fact that [Walgreens] is not required to accept divestiture and other remedies imposed by governmental authorities (i) that would result in the divestiture of more than 1, 000 [Walgreens] and Rite Aid stores. . . .” (Id. at ¶ 71) (alterations added).

         On December 10, 2015, Rite Aid and Walgreens each received a second request for information from the FTC related to the original merger agreement. (Id. at ¶ 79). The following day, the two companies issued a joint press release advising of the second request and characterizing the request as a “standard part of the regulatory process in connection with the FTC's review.” (Id. at ¶ 80). The press release also reiterated that the companies “expect the transaction to close in the second half of calendar 2016.” (Id.).

         On January 7, 2016, Walgreens held an earnings call for its first fiscal quarter of 2016. (Id. at ¶ 81). During the call, Defendant Pessina reiterated that the “transaction is progressing as we expected and planned. We continue to anticipate completing the acquisition in the second half of calendar-year 2016. The transaction remains subject to approval by Rite Aid's shareholders, regulatory clearances, and other customary closing conditions.” (Id.; Doc. 99, Ex. 6, p. 3). Defendant Pessina went on to state that Walgreens was “continuing to work closely with the regulators. You will have seen, as we expected, that we have received a second request from the FTC for additional information. This is a standard part of the regulatory process in connection with the FTC's review.” (Doc. 83, ¶ 81; Doc. 99, Ex. 6, p. 3). Defendant Pessina informed the callers that Walgreens “appointed a highly experienced integration team which has been up and running since the end of November. They are now well underway on preliminary planning work.” (Doc. 83, ¶ 81; Doc. 99, Ex. 6, p. 3). He also confirmed that they believed store divestitures would number fewer than 500. (Doc. 83, ¶ 81).

         Later, on January 27, 2016, at Walgreens's annual shareholder meeting, Defendant Pessina continued to predict that the transaction would close in the second half of 2016 and stated that the process “is proceeding as we had anticipated.” (Id. at ¶ 82). From January through April 2016, Rite Aid and Walgreens provided the FTC with information and documents responsive to the FTC's second request. (Id. at ¶ 83).

         Walgreens held an earnings call for the second quarter of 2016 on April 5, 2016. (Id. at ¶ 84). During the call, Defendant Pessina stated that “the regulatory approval process [was] progressing in line with the timetable we had expected.” (Id.). Defendant Pessina further remarked:

Nothing has changed, except the fact we are collaborating, and as the time is passing, probably the solution will be closer, because at the end of the day, we knew from the very beginning that this would have been a very long process, that would have been asked for many, many documents and information. We are going through the process.
The process is developing and [sic] an absolute normal way and so we hope that, sooner or later, we will have an indication on where we are, but of course, we cannot put a day or even a month for this indication because it depends very much on how deeply the FTC wants to analyze all of the documents that we have given. But it's nothing atypical, exactly online with what we were expecting.

(Doc. 99, Ex. 7, p. 3). From late April to August 2016, the FTC began to identify geographic areas of concern where Walgreens and Rite Aid operations overlapped. (Doc. 83, ¶ 85).

         During Walgreens's July 6, 2016, third quarter earnings call, Defendant Pessina again stated that the Rite Aid merger was “progressing as planned. As you know, we are in the process of seeking a regulatory approval. In part, our integration team is continuing its work on preliminary planning.” (Id. at ¶ 86; Doc. 99, Ex. 8, p. 3). Later in the call, Defendant Pessina returned to the question of store divestitures and reiterated that they believe the number will be “around 500” and then maintained his prediction that the deal would close “by December, ” noting, “But of course, it doesn't depend on us. The FTC will let us know when they are ready.” (Doc. 83, ¶ 86; Doc. 99, Ex. 8, p. 4).

         On September 8, 2016, Walgreens issued a press release announcing its discussions with the FTC and noting that, due to “certain issues raised in those discussions, ” Walgreens may “be required to divest more than the 500 stores previously communicated” while still continuing “to expect that fewer than 1, 000 stores will be required to be divested. In addition, the company continues to believe that the acquisition will close in the second half of calendar 2016.” (Doc. 83, ¶ 87; Doc. 99, Ex. 5, p. 2).

         Several weeks later, on October 20, 2016, the companies issued a joint press release announcing that they had extended the merger agreement end date from October 27, 2016, to January 27, 2017. (Doc. 83, ¶ 88). In a Walgreens earnings call that same day, Defendant Fairweather stated that they “remain actively engaged with the FTC on its review. Today, we still expect that the most likely outcome will be that the parties will be required to divest between 500 and 1, 000 stores. We believe that we will be able to execute agreements to divest these stores to potential buyers pending FTC approval, by the end of calendar year 2016. I now expect to close the acquisition in early calendar 2017.” (Id.; Doc. 99, Ex. 9, p. 3). When asked why he was confident in an early 2017 close, Defendant Pessina responded: “Nothing has changed, we just have a delay in the execution of the deal. This is our perception, we have always been optimistic because we have never seen an attitude from the FTC, which was an absolute negative. . . .” (Doc. 83, ¶ 89). Defendant Pessina continued

For what we see today, we see just a long administrative process, but we don't see substantial differences from what we were expecting. Yes, probably more stores, a little more stores here and there, but at the end of the day - as far as I can see today, as far as we can see today, we are absolutely confident that we can create, that we can do the deal and we can create the value. Just this value will be a little postponed on time.

(Id.).

         On that October 2016 earnings call, Defendant Pessina also began to engage with journalists who were reporting regulatory turbulence. (Id.) (“I know that we read on the papers are different news, no idea about the sources of this news, but for sure if we could talk, and of course you know that we cannot . . . our news would be different.”). Defendant Pessina continued his dialogue with journalists during a November 8, 2016, healthcare conference, stating, “we have a different opinion than certain journalists who are writing things we don't recognize or people we - or about people we have never heard of. So, just to reassure you, if we say that we are confident, it is because what we know makes us very confident.” (Id. at ¶ 90). Later in the conference, when asked about other potential acquisitions, Defendant Pessina stated that “we have to focus on Rite Aid. It will take some time to get there. We will have a very laborious integration. We have a team who is working with - been working for some time, some integration on the process. And it will take a lot of energy to do so.” (Id. at ¶ 91; Doc. 99, Ex. 4, p. 3).

         At a conference on November 17, 2016, Defendant Fairweather stated that they were “very clear” that the deal would complete, but that store divestitures would “now be in the range of 500 to 1000” and that the transaction had “perhaps taken a little bit longer than we had thought in the first place. There's lots of stuff in the papers but it is amazing where it comes from.” (Doc. 83, ¶ 94). Defendant Fairweather was supported by another Walgreens officer who remarked that Walgreens has “enough clarity on what we have to do in terms of remedies with the FTC to be - to have opened the data room for sale of pharmacies to potential buyers.” (Id. at ¶ 95).

         On December 20, 2016, the companies jointly issued a press release announcing an agreement with Fred's Inc. to sell 865 Rite Aid stores for $950 million in cash related to the original merger agreement. (Id. at ¶ 96).

         On January 5, 2017, during a Walgreens earnings call, Defendant Fairweather continued to express that the Rite Aid transaction was making “good progress towards complet[ion].” (Id. at ¶ 97). Defendant Pessina later said on the call that Walgreens did not have a “Plan B” in the event the original merger agreement was not approved: “[W]e don't want even to think of the fact that this could not be approved after so many months, when we have given a lot of information, and we have had a very good relationship with the people of the FTC. . . . So we are not thinking of a Plan B today.” (Id. at ¶ 98).

         Later that month, however, on January 30, 2017, Rite Aid and Walgreens announced that they had terminated the original merger agreement and entered a revised merger agreement, under which the per-share consideration was reduced to between $7.00 and $6.50, depending on the number of store divestitures required. (Id. at ¶ 99). The revised merger agreement extended the merger deadline to July 31, 2017. (Id.). Rite Aid subsequently issued another proxy seeking shareholder approval of the revised merger agreement, in which Rite Aid acknowledged that its stock had been trading at prices that did not represent “an accurate reflection of the value of Rite Aid because such stock price reflected market expectations of the likelihood that the merger would occur on the terms of the original merger agreement and did not reflect the value of Rite Aid as an independent company.” (Id. at ¶ 107).

         On a Walgreens earnings call on April 5, 2017, Defendant Pessina remained “optimistic that we will bring this deal to a successful conclusion. But there is no doubt that the process of getting clearance for the transaction is taking longer than we expected. We are constantly and currently collaborating with FTC, Rite Aid and Fred's to get the necessary approvals and close the transaction. At the same time, we are working to be in a position to certify compliance. We believe that we can achieve this in the coming weeks and are still working toward our revised time table to obtain a clearance by the end of July.” (Id. at ¶ 100; Doc. 99, Ex. 1, p. 3).

         On June 29, 2017, however, the companies announced that they had terminated the revised merger agreement and had entered an asset purchase agreement whereby Walgreens would simply purchase a specified number of Rite Aid stores. (Doc. 83, ¶¶ 104, 109).

         II. ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.