NEW YORK, March 8, 2017 /PRNewswire/ -- Alden Global Capital LLC (together with its affiliates, "Alden"), a holder of nearly 25% of the outstanding common stock of Fred's, Inc. ("Fred's" or the "Company") (NASDAQ:FRED), today issued a response to Fred's announced appointment of new directors, Christopher W. Bodine and Peter J. Bocian, and CEO Michael K. Bloom, to the Company's Board of Directors (the "Board"). Alden also expressed its concerns with the Company's unacceptable operating performance, unwarranted dilutive equity issuance to A.T. Kearney and the Board's failure to provide proper oversight of management.
Heath Freeman, President of Alden, issued the following statement:
"For more than two months, we have attempted to work cooperatively and privately with Fred's to reconstitute the Board in a manner that we believe is in the best interests of shareholders. We have remained patient and respectful of the Company's heightened sensitivity around any public communications during the pendency of the deal with Rite Aid Corporation ("Rite Aid"). We are deeply frustrated by the Board's decision to reconstitute the Board with new candidates, including CEO Michael Bloom, rather than work in good faith with its largest shareholder to reach an agreement around Board composition. It is quite clear that these changes were only made in reaction to our involvement and were crafted in such a manner to give the appearance that the Board is acting reasonably, while really seeking to protect the destructive status quo.
We think it is telling that the Board did not proactively seek to refresh the Board on its own, but rather only as a way to diffuse our efforts to work cooperatively to enhance the Board with directors committed to serving shareholders' best interests. Importantly, these reactionary changes do not go far enough to address the significant issues facing the Company and, in our view, are transparent attempts by the Company to create the illusion of change to appease shareholders. Fred's latest maneuver only reinforces our belief that this Board cannot be trusted and that shareholder representation on the Board is immediately required to ensure that the Company's cost structure resets in advance of any transaction and that the transaction with Rite Aid is properly managed. Fred's abysmal business decision-making and country club environment in the executive suite and boardroom are serving as significant obstacles to maximizing shareholder value.
The Board's delay tactics during our discussions and adoption of a poison pill and defensive Bylaws just four days after public disclosure of our ownership stake in Fred's demonstrate their intention to further retreat inward from the alarming reality at Fred's core business.
Unfortunately, these entrenchment-minded actions are just the tip of the iceberg of the corporate governance problems plaguing Fred's. We were appalled to learn the Company had issued 490,074 Class A Voting shares to A.T. Kearney, putting a significant amount of voting stock in the hands of the Company's own advisors. This action was irresponsible and unnecessary when the Company has the capacity to pay in cash. This harmful action taken at the expense of shareholders deceitfully provided A.T. Kearney double the disclosed value of its services in the form of valuable Fred's shares, based on the share price on the grant date. To us, these are signs of a Board that is looking to go to war with its own shareholders.
The Company stands at a critical juncture. Fred's business has persistently underperformed as evidenced by poor comparable store traffic, declining comparable store sales, suboptimal gross margins and bloated SG&A. Given the Company's lackluster operating performance, it is not surprising that Fred's total shareholder return significantly lags behind its dollar store and pharmacy peers. This poor performance should have been addressed long before the occurrence of any transaction.
The Board and management should be held accountable for its shortcomings. The Company's reactive approach to adopting changes as a result of shareholder pressure further underscores the need for independent, shareholder representation in the boardroom. When the pressure is off, what will keep the Board from returning to its past practices of complacent oversight and weak governance?
It is time for the Board to prove it is committed to protecting and enhancing shareholder value. We have made every effort to engage with the Board constructively and in good faith to resolve this matter through a private process. The entrenchment and dilution needs to immediately cease. Shareholders deserve directors who will be proactive and work tirelessly to enhance value, not ones who appear only committed to doing the bare minimum in the face of shareholder pressure.
We therefore urge the Board to reconsider its uncooperative approach and to immediately engage with us to discuss a real reconstitution of the Board. Despite our clear frustration with the Company, we remain ready, willing and able to continue our negotiations with the Board in good faith to reach an amicable resolution. A true Board refresh is required, and all factors point to that. We nonetheless are prepared to take any and all actions necessary to ensure that the interests of shareholders remain paramount in the boardroom, including seeking the election of director candidates at Fred's 2017 annual meeting of shareholders."
About Alden Global Capital LLC
Alden is a New York based investment firm focused on deep value, catalyst driven investing.
Heath Freeman, (212) 888-5500
Jonathan Sassover, (212) 888-5500
SOURCE Alden Global Capital LLC