Securities and Exchange Commission regulators say Rite Aid exec David M. Mahan sold $650,000 worth of company stock in 2017 just before the company’s share price dropped on merger rumors.
Mahan, 58, of Marlton, N.J., is charged with insider trading based on nonpublic information regarding a potential merger between Walgreens Boots Alliance, Inc. and Rite Aid, the SEC said. A civil complaint was filed against Mahan Thursday in the U.S. District Court for the Middle District of Pennsylvania.
On Jan. 19, 2017, Mahan allegedly sold off more than $650,000 in Rite Aid securities before company’s stock price dropped a day later. Mahan worked for Rite Aid since 1984 and was a regional vice president since 2004, the SEC complaint said.
“Mahan had learned confidential, market-moving information about Rite Aid relating to the likelihood that the publicly-announced merger with Walgreens Boots Alliance, Inc. would close by January 27, 2017 as expected,” the SEC complaint said.
By dumping his Rite Aid holdings, Mahan avoided a $87,277 loss, the SEC said.
Big Merger Deal
In 2015, Walgreens, based in Deerfield, Ill., had agreed to acquire all outstanding shares of Rite Aid for $9 a share in cash, a 48% premium. The transaction was expected to close in the latter half of 2016, the complaint said. The closing was later pushed into 2017.
The merger agreement stated that if the Federal Trade Commission did not approve the proposed merger by Jan. 27, 2017, Rite Aid and Walgreens would need to agree to amend the document in
order to extend the end date.
“Rite Aid, Walgreens, and investors understood that should this occur, Rite Aid and Walgreens would likely be required to divest additional stores and therefore the price per share paid by Walgreens would likely be reduced,” the SEC complaint said.
Once Mahan learned the merger was unlikely to be approved by the Jan. 27 deadline, he placed orders to sell 11,985 shares of Rite Aid stock and to exercise 63,675 Rite Aid employee stock options and sell the underlying stock, the SEC complaint said.
These trades were executed Jan. 19, and Mahan’s Rite Aid securities were sold at prices ranging from $8.61 to $8.62 per share, for total sale proceeds of $651,604, the complaint said. The 75,660 total shares sold by Mahan constituted all of his Rite Aid holdings, the SEC said.
“The next day, January 20, 2017, at approximately 10:40 am, Bloomberg published an article reporting that FTC officials were concerned that Walgreens’ and Rite Aid’s current efforts to preserve competition were not sufficient, and that the FTC likely would not be approving the merger by the January 27, 2017 end date,” the SEC complaint said.
After the Bloomberg article went public, Rite Aid’s stock price fell, closing on Jan. 20, 2017 at $7.46 per share, approximately 13% lower than the prior day’s closing price.
Mahan did not admit or deny the allegations in reaching a settlement with the SEC. The final judgment orders him to repay $87,277, plus interest of $12,107, and a civil penalty of $87,277. The court must approve the settlement.
Walgreens and Rite Aid later extended the merger date to July 31, 2017. The merger ultimately never happened, but Walgreens did buy about half of Rite Aid’s stores.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at email@example.com. Follow him on Twitter @INNJohnH.
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