Rite Aid - Vote 'Em Out On October 30th

Oct. 19, 2018 8:45 AM ETRite Aid Corporation (RAD)AMZN, CVS, DNKN, TGT, WBA, WMT497 Comments


  • Rite Aid's incumbent management and board of directors have failed shareholders repeatedly.
  • Insanity is keeping the same people in power and expecting a different result.
  • For Rite Aid's equity to ever have significant value, it needs to be entrusted to people who take stewardship seriously.
  • Shareholders have the perfect opportunity on October 30th to register their discontent by voting against all incumbents at the annual meeting.

Author's Note: We attempted to get Rite Aid's management's response to many of the substantive points raised in this article, however we did not receive any answer from their IR department to our inquiries prior to submitting the article for publication.

If Warren Buffett is correct that price is what you pay and value is what you get, it appears to us that there could be a wide disparity between the value of Rite Aid's (NYSE:RAD) equity (i.e., its intrinsic value) and its trading price (i.e., its market value). RAD common stock has been marked down nearly enough to be available at your local Dollar Store, but what is its intrinsic value? This leads us to a corollary to Buffett's maxim, namely that an asset's intrinsic value depends greatly on in whose hands such asset rests. Stefano Pessina, the CEO and largest shareholder of Walgreens Boots Alliance (WBA), obviously believed just three years ago (before current RAD management allowed the company to deteriorate) that if all of Rite Aid's assets were in his capable hands, the common equity would be worth at least of $9 per share. Clearly the stock market believes that, in the current CEO's hands, RAD's remaining assets (following the divesture of approximately 1,900 stores to WBA earlier this year) are worth just a tiny fraction of this figure, notwithstanding the significant debt paydown RAD has accomplished with the proceeds received from WBA. Nor does the fact that RAD's conflicted CEO and board of directors recently unsuccessfully attempted to sell Rite Aid out from its shareholders to Albertsons at a fire sale price mean that RAD shares would not have much more value if the company were helmed by a board and management actually responsive to the shareholders.

A perusal of the most recently filed RAD proxy

This article was written by

Seven Corners Capital Management, LLC is an investment research and advisory firm based in New York City. The firm aims to achieve investment returns by identifying (1) companies with wide competitive moats and honest and able management, trading at reasonable valuations, (2) turnaround and "asset play" opportunities (as described by Peter Lynch in his book "One Up on Wall Street") and (3) special situations (such as mergers, spinoffs and liquidations) that provide attractive returns which are non-correlated to the broader equity markets. Our hope and expectation is to achieve annual returns approximately 10% above that of the S&P 500 on a long-term basis.

Disclosure: I am/we are long RAD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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