SEC Probes Rite Aid Acquisition Accounting

Rite Aid Corp. is under review by federal regulators for accounting practices related to its purchases of smaller drugstore chains and other businesses, an analyst said Thursday.

The Securities and Exchange Commission review began after the drugstore chain filed a plan to sell shares to the public, said Salomon Smith Barney analyst Jonathan Ziegler, who spoke with Chief Financial Officer Frank Bergonzi on Wednesday.

Rite Aid has been expanding aggressively through purchases and store openings in recent years to keep up with larger rivals Walgreen Co. and CVS Corp. The company is responding to SEC questions about its accounting practices dating to its purchase of Thrifty Payless Holdings Inc. in 1996, Ziegler said he was told by Bergonzi.

Executives with Camp Hill, Pa.-based Rite Aid did not respond to calls seeking comment. The SEC declined comment.

The SEC also is questioning a $173.8-million charge taken in last year’s second quarter for store closings and Rite Aid’s amortization of costs of its $1.5-billion purchase of PCS Health Services, a pharmacy benefits manager, from Eli Lilly & Co.

The stock sale that sparked the SEC review would help finance the cash purchase.

Even with the SEC review, Ziegler said he doubts Rite Aid will have to restate earnings for any prior periods, adding, “I don’t think they did anything wrong.”

A report Ziegler issued Thursday was otherwise optimistic that Rite Aid will get back on track.

Rite Aid shares rose $1.38 to close at $25 on the New York Stock Exchange.

Rite Aid shares had plunged 39% last Friday, dropping $14.44 to $22.56, after the company surprised analysts and investors with a warning of lower-than-expected fourth-quarter earnings, citing expansion costs.