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Fred’s Inc (FRED): Alden Global Capital Becomes Largest Shareholder and Goes Activist

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Randall Smith‘s Alden Global Capital has initiated a major stake in Fred’s, Inc (NASDAQ:FRED) and has become the company’s largest shareholder. According to regulatory filings dated December 22, the fund has acquired 9.27 million shares of the pharmacy chain, amassing 24.8% of its outstanding stock. The fund has also expressed its intention to engage in discussions with the management of Fred’s with regard to governance, strategic plans and a proposed acquisition.

On Tuesday, December 20, Fred’s, Inc (NASDAQ:FRED) stock shot up by 81% after the company announced it would acquire the 865 stores that Rite Aid Corporation (NYSE:RAD) needs to dispose of in order to finalize its merger with Walgreens Boots Alliance Inc (NASDAQ:WBA). This deal would more than double the size of Fred’s operation. According to the Wall Street Journal, Alden Global Capital, made a quick 14% profit in the process, as it was quietly buying up the stock. The fund’s management kept on buying the stock even after the surge in price and considers it to still be undervalued.

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In response to Alden’s moves, the company’s management has a adopted shareholders’ rights plan, also known as poison pill, in order to “ensure that the Board remains in the best position to perform its fiduciary duties and enable all Fred’s Pharmacy shareholders to receive fair and equal treatment.” The company said it adopted the plan after “unusual and substantial activity” in its shares.

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Fred’s, Inc (NASDAQ:FRED) had 650 stores at the end of October and has pledged almost all its assets to contract $1.65 billion in loans in order to finance the acquisition, which is expected to cost approximately $950 million. Following the recent jump, Fred’s shares are now up by roughly 22% for the year. Billionaire Ken Griffin‘s Citadel Investment Group held126,425 shares worth $1.14 million at the end of September. In its latest 13F filing, Jim Simons’ Renaissance Technologies reported a fresh investment in the company, having acquired 27,850 shares during the third quarter.

You can access the original SEC filing by clicking here.

Ownership Summary Table

Name Sole Voting Power Shared Voting Power Sole Dispositive Power Shared Dispositive Power Aggregate Amount Owned Power Percent of Class
Strategic Investment Opportunities 9,275,000 9,275,000 9,275,000 24.8%
Alden Global Capital 9,275,000 9,275,000 9,275,000 24.8%
Heath Freeman 9,275,000 9,275,000 9,275,000 24.8%
Randall Smith
Randall Smith
Alden Global Capital

Page 1 of 10 – SEC Filing

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO § 240.13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
§ 240.13d-2(a)
(Amendment No.  )1
Fred’s, Inc.
(Name of Issuer)
Class A Common Stock
(Title of Class of Securities)
356108100
(CUSIP Number)
HEATH FREEMAN
ALDEN GLOBAL CAPITAL LLC
885 Third Avenue, 34th Floor
New York, NY 10022
(212) 888-5500
STEVE WOLOSKY, ESQ.
ANDREW FREEDMAN, ESQ.
OLSHAN FROME WOLOSKY LLP
1325 Avenue of the Americas
New York, New York 10019
(212) 451-2300

(Name, Address and Telephone Number of Person

Authorized to Receive Notices and Communications)
December 14, 2016
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§ 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box ¨.
Note:  Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits.  See § 240.13d-7 for other parties to whom copies are to be sent.
_______________
1              The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).
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