Rite Aid's shareholders to get $149.5 million in notes


Rite Aid Corp. will pay shareholders $149.5 million in senior secured notes as the final installment to settle a nearly $200 million class action lawsuit, the company said yesterday.

The Camp Hill, Pa., retailer, the nation's third largest drugstore chain, has already paid $45 million in cash toward the settlement, using liability insurance. To make the final payment, the company said, it amended a $1.9 billion secured credit facility.

The consolidated class action suits alleged that Rite Aid's former management fraudulently misrepresented financial results for fiscal 1997, fiscal 1998 and fiscal 1999, which led to more than two years of losses and left the company on the brink of bankruptcy.

Yesterday's announcement "clears up a cloud hanging over the stock," said Jonathan H. Ziegler, a senior analyst with Deutsche Bank in San Francisco. "It gets some of the history prior to existing management behind them."

Rite Aid also said yesterday that it is on track to meet expectations for its fourth quarter, which ends March 2. The company expects earnings before interest, taxes, depreciation and amortization of $140 million, in line or slightly better than analysts' expectations.

Rite Aid's shares rose 40 cents to $3.03 yesterday.

Rite Aid, with a new management team that is attempting a corporate turnaround, reached an agreement to settle the class action in November 2000. The chain of 3,500 stores had the option of making the final payment this year in notes, cash or stock.

Bob Miller, chairman and chief executive officer, said in a statement that issuing notes is in the best interest of shareholders.

Sherrie Savett, an attorney with Berger & Montague in Philadelphia and one of two lead co-counsels for the plaintiffs, called the settlement fair.

"We were dealing with a company that had a lot of financial difficulties," she said. "Under the circumstances, we got an excellent settlement for shareholders."

Ultimately, the notes will likely be sold for cash, she said. But the amount to individual stockholders - those who bought shares between May 2, 1997, and Nov. 10, 1999 - won't be determined until the settlement is final. The settlement is being appealed by defendants Martin Grass, Rite Aid's former CEO; former President Timothy Noonan; former Chief Financial Officer Frank Bergonzi; and former auditor KPMG LLP.

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