Investors in California can earn handsome returns when they hold stocks in companies that become the target of proposed mergers or acquisitions, but they usually lose money when these deals fall through. Rite Aid stock soared when Walgreens announced a proposed merger with the company in 2015, but it lost most of its value in 2017 when the Federal Trade Commission blocked the deal on antitrust grounds.
A group of Rite Aid investors believed that Walgreens executives misled them when they claimed that obtaining regulatory approval would be a straightforward process, and they filed a class-action lawsuit to seek compensation for the diminished value of their stock. On Oct. 18, papers were filed in a federal court in Pennsylvania that revealed Walgreens has agreed to pay $192.5 million to settle the business litigation. News of the settlement was released just days after Rite Aid filed for Chapter 11 bankruptcy protection. The proposed Rite Aid bankruptcy plan provides no compensation for shareholders.
The merger of the nation’s two largest pharmacy chains was likely going to attract the close attention of government regulators, but Walgreens executives claimed that approval was likely. When it became clear that the FTC was not going to allow the merger, Walgreens paid Rite Aid $4.38 billion for approximately 2,000 of its 4,600 U.S. stores. About 600 of those stores have since been closed.
Trading in volatile stocks can be extremely lucrative or ruinously expensive. When investors choose to put their money into companies involved in mergers or acquisitions, the information they are provided should be accurate and complete.