Ride Aid deal collapses, hurting hedge funds

Rite Aid’s merger with Walgreens Boots Alliance has gone up in flames, burning some hedge funds in the process.

Two of the biggest casualties: Rite Aid and Fred’s, a smaller chain that stood to gain 1,200 divested stores as part of the deal.

The death of the drugstore acquisition was particularly painful for hedge funds managers, many of whom count the two smaller companies among their holdings.

Hedge funds held 26 percent of Rite Aid’s outstanding shares and 32 percent of Fred’s, according to March 31 13F filing data compiled by Bloomberg. That compares to 8.3 percent for the average company in the Russell 1000 Index.

Those with the most to lose include New York-based Alden Global Capital, which held 9.3 million shares of Fred’s — a 24 percent stake — as of April 24.

Its biggest stakeholder, Alden purchased the bulk of those shares in December, when Fred’s was trading around $20 a share. Since then, that position would have lost about half its market value.

Alden owns the parent company of The Denver Post.

Holders of both Rite Aid and Fred’s, as of March 31, include Adage Capital Partners and David Einhorn’s Greenlight Capital, though Einhorn said he trimmed his Rite Aid position on a May 3 conference call.

Other top hedge fund holders of Rite Aid include $12 billion Highfields Capital Management and Pentwater Capital Management.

Along with Alden, top holders of Fred’s include JPMorgan Chase & Co.-owned Highbridge Capital Management.