Rite Aid has exited federal bankruptcy protection and is now a private company. Matt Schroeder, formerly the CFO, has been promoted to chief executive. The drug store chain revealed that Schroeder replaced Jeffrey S. Stein as CEO and chief restructuring officer last month, coinciding with the company’s move out of Chapter 11.
Schroeder joined Rite Aid in 2000 and held multiple leadership roles before becoming CFO in 2019.
Key Takeaways
- Rite Aid Exits Bankruptcy: Rite Aid has successfully emerged from Chapter 11 bankruptcy protection, significantly reducing its debt by $2 billion and securing $2.5 billion in exit financing.
- Leadership Transition: Matt Schroeder, previously the CFO, has been appointed as the new CEO. Schroeder’s experience and deep knowledge of the company make him well-positioned to head Rite Aid in its next phase.
- Store Closures and Debt Reduction: Rite Aid has reduced its store count from 2,100 to around 1,300 as part of its debt restructuring plan and canceled all common shares as it becomes a private entity.
- Legal and Regulatory Challenges: The company still faces significant legal challenges, including opioid-related lawsuits and a five-year ban from the FTC on its use of AI-driven facial recognition technology due to privacy and discrimination concerns.
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Rite Aid Exits Bankruptcy, Appoints Matt Schroeder as New CEO, and Reduces Store Count
Rite Aid has completed its bankruptcy process, appointing Matt Schroeder as the new CEO, reducing its number of stores, and significantly cutting its debt. On the day of Rite Aid’s bankruptcy exit, the company announced Schroeder’s appointment following the bankruptcy court judge’s earlier approval of its reorganization plan. The company has reduced its debt by approximately $2 billion and secured about $2.5 billion in exit financing. Now operating as a private entity under the ownership of some of its creditors, Rite Aid has also canceled all existing common shares.
The pharmacy retail provider now operates around 1,300 stores, a decrease from the 2,100 stores it had before filing for bankruptcy in October 2023.
Jeffrey S. Stein, who resigned from his roles as chief restructuring officer as well as the CEO of the company coinciding with the company’s exit from Chapter 11, described the company’s exit from bankruptcy as a critical point in its history that allowed it to advance as a transformed, more robust, and efficient business. He expressed appreciation for the continued support from customers, associates, and partners, emphasizing the company’s commitment to delivering top-notch pharmacy services that enhance health and wellness in their communities. Stein conveyed his enthusiasm for the future of Rite Aid, focusing on implementing its strategic plans and achieving results for customers and stakeholders.
Matt Schroeder will spearhead the efforts at Rite Aid, joining the company in 2000 as the vice president of financial accounting and later serving as CFO. His extensive experience in various leadership roles at Rite Aid has equipped him with a thorough understanding of the company’s operations. He becomes the fourth CEO since early 2023, following Heyward Donigan’s resignation and Elizabeth Burr’s departure as interim CEO during the Chapter 11 proceedings.
Prior to his tenure at Rite Aid, Matt Schroeder was employed at Arthur Andersen LLP as an Audit Manager. He earned his bachelor’s degree in accounting from Indiana University of Pennsylvania. Additionally, Schroeder is a board member of the Whitaker Center for Science and Arts, a nonprofit organization that serves the greater Harrisburg, Pennsylvania area.
Bruce Bodaken, who served as Rite Aid’s board chair during Chapter 11, stated that Schroeder’s deep knowledge of the company and his exceptional leadership qualities make him a perfect choice to head Rite Aid as it emerges as a more robust entity.
Schroeder stated that he feels privileged to be a part of Rite Aid as it moves forward with this new chapter, which focuses on serving its customers. He acknowledged the team’s commitment, which positions the company for transformation. Schroeder expressed optimism about the company’s future and his eagerness to collaborate with the team to continue their mission of supporting customers’ health throughout their lives.
Rite Aid declared bankruptcy in October, revealing an initial agreement with several major secured noteholders to reorganize its financial structure. The company’s court filings indicate liabilities and assets ranging from $1 to $10 billion. Following the bankruptcy declaration, Rite Aid has closed numerous stores.
Before filing for bankruptcy, Rite Aid was involved in more than 1,600 legal cases related to opioids, with a major lawsuit coming from the Department of Justice. Rite Aid was accused by the DOJ of purposefully writing illicit prescriptions for restricted medications, a violation of both the False Claims Act and the Controlled Substances Act. In 2022, Rite Aid settled these opioid lawsuits by agreeing to pay as much as $30 million.
When Rite Aid initially filed for bankruptcy, its executives expressed hopes that the restructuring would substantially reduce its debt and allow the company to fairly address its opioid litigation, according to a report by Healthcare Brew.
At that time, Rite Aid planned to close 154 stores, but as of a September 4 report by CBS News, over 520 stores have been closed. In February, during the bankruptcy proceedings, Rite Aid sold its pharmacy benefit management business, Elixir, to MedImpact Healthcare Systems for $576.5 million. Rite Aid had acquired Elixir in 2015 for about $2 billion. In 2022, a class-action lawsuit claimed Rite Aid had misled investors about the status of this business, Healthcare Brew reported.
In December 2023, Rite Aid faced a significant setback when the Federal Trade Commission (FTC) imposed a five-year ban on the company’s use of AI-driven facial recognition technology in its stores. The FTC’s decision came after it determined that Rite Aid had not implemented adequate safeguards, leading to the wrongful identification of thousands of customers, particularly women and people of color, as shoplifters.
Samuel Levine, the director of the FTC’s Bureau of Consumer Protection, criticized Rite Aid’s handling of the technology, stating that its irresponsible use led to customer humiliation and security risks regarding sensitive information.
During this debt restructuring period, Rite Aid was advised legally by Kirkland & Ellis LLP, financially by Guggenheim Securities, LLC, and on transformation and financial matters by Alvarez & Marsal.
About Rite Aid
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Rite Aid Corp. owns and operates retail drug stores and is organized into two main segments: Retail Pharmacy and Pharmacy Services. The Retail Pharmacy segment covers prescription medications, both branded and generic, as well as health and beauty products, personal care items, and walk-in clinics.
The Pharmacy Services segment provides pharmacy benefit management services, including both transparent and traditional models, catering to insurance companies, employers, health plans, and government employee programs. Founded by Alex Grass on September 12, 1962, the company is based in Camp Hill, Pennsylvania.
Conclusion
Rite Aid’s emergence from bankruptcy marks a pivotal moment in the company’s long and turbulent history. With Matt Schroeder at the helm, the company is poised for a fresh start, backed by a significantly reduced debt load and strategic debt restructuring. While the challenges of store closures and legal hurdles, including opioid litigation and the FTC’s ruling on facial recognition technology, continue to loom large, Rite Aid’s focus now shifts towards regaining stability and rebuilding trust with its customers and communities.
As it operates under new ownership, the company has an opportunity to streamline its operations and redefine its role in the retail pharmacy landscape. Time will tell how effectively the new leadership can guide the company through this critical phase, but the groundwork has been laid for a more sustainable future.
