US pharmacy chain Rite Aid Corp. is moving quickly to sell its assets in bankruptcy, over the objection of at least one potential bidder, because the company faces looming financial deadlines, a company lawyer said during the chain’s first day under court supervision.
(Bloomberg) — US pharmacy chain Rite Aid Corp. is moving quickly to sell its assets in bankruptcy, over the objection of at least one potential bidder, because the company faces looming financial deadlines, a company lawyer said during the chain’s first day under court supervision.
The lenders who are financing the company’s reorganization have imposed near-term deadlines as a condition for loaning Rite Aid money, Ross J. Fiedler told the judge overseeing the company’s Chapter 11 bankruptcy.
One potential bidder is a “household name” that needs more time to put together an offer, restructuring attorney Andrew Dietderich said during the hearing in Trenton, New Jersey. Imposing a deadline of Nov. 16 on his client and others “frankly is ridiculous,” Dietderich said.
Rite Aid has agreed to sell its pharmacy benefit manager business, which acts as a middleman between insurers and patients, for $575 million. MedImpact Healthcare Systems has agreed to be the initial bidder for the business, called Elixir, in exchange for a potential breakup fee worth 3.5% of the purchase price.
Rite Aid got unusually quick approval for the bidding rules and the breakup fee from US Bankruptcy Judge Michael Kaplan. To save more than 45,000 jobs and avoid disrupting the flow of medicines to millions of customers, the company needs to quickly reorganize under court protection, Rite Aid’s lead attorney Josh Sussberg said in court Monday.
Rite Aid closed hundreds of stores before filing bankruptcy and will use its time in Chapter 11 to shutter other locations that are under-performing, Sussberg said. Major retailers like Rite Aid often turn to bankruptcy because Chapter 11 allows troubled companies to get-out of expensive leases at relatively little cost.
The company’s need to reduce its locations reflects the way the pharmacy business has changed over the last two decades. Rite Aid is not just facing stiffer competition from national chains like CVS and Walgreens, but increasingly from big box retailers like Walmart Inc. and Target Corp., grocery stores like Kroger Co. and even Amazon.com Inc., Sussberg said.
“To say the competitive dynamic in this industry has changed significantly since the 80s and 90s, when Rite Aid was the number one chain in the country, would be an understatement,” Sussberg said.
Rite Aid undertook a series of debt swaps and pay downs between 2020 and 2022 in an attempt to cut its interest expenses, according to court papers. It pays about $200 million annually in interest, Sussberg said.
Rite Aid has also been battling opioid claims, and faces about 1,400 lawsuits, mostly from governmental entities that blame the company for contributing to an epidemic of addiction to pain killers.
The case is Rite Aid Corp., 23-18993, US Bankruptcy Court for the District of New Jersey.
–With assistance from Amelia Pollard.
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