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Walgreen adds activist hedge fund founder to board

September 8, 2014

Walgreen has named Jana Partners founder Barry Rosenstein to its board, and the activist investor will get a say in choosing at least one additional director for the nation’s largest drugstore chain.

Walgreen Co. is feeling shareholder pressure after lowering its forecast for the earnings it expects after combining with health and beauty retailer Alliance Boots, which runs the United Kingdom’s largest drugstore chain. The Deerfield, Illinois, company’s shares have dropped since it cut its forecast last month and said it will no longer consider an overseas reorganization that would have trimmed its U.S. taxes.

Walgreen said Monday that Jana Partners will recommend an additional independent director who has no ties to either the drugstore chain or the hedge fund. If another board vacancy opens and Walgreen decides to fill it, then Jana and the nation’s largest drugstore chain must agree on the replacement.

Jana Funds holds about a 1.3 percent stake in Walgreen, or 12.5 million shares. Rosenstein will resign from Walgreen’s board if that falls below about 6.3 million shares, according to the agreement between the hedge fund and the drugstore chain.

Jana also has agreed to cap its Walgreen stake at 4.9 percent while Rosenstein serves on the drugstore chain’s board.

Jana Partners has influenced corporate strategy recently with its investments in companies such as pet food retailer PetSmart Inc. and Redbox parent Outerwall Inc. PetSmart said last month that it would consider selling itself, while Outerwall in December outlined plans to cut jobs and costs and shut down some businesses.

Rosenstein, 55, will join the finance committee of Walgreen’s board. He said in a statement from the drugstore chain that he was eager to “work constructively” with the company’s management.

Walgreen shares rose 68 cents, or 1.1 percent, to $64.63 Monday morning while broader trading indexes were mixed.

The company’s shares lost 12 percent last month, hurt by the cut forecast. But the stock was still up 11 percent in 2014 through Friday’s close. That topped the 8.6 percent gain from the Standard & Poor’s 500 index over the same span.

Walgreen, which runs nearly 8,200 drugstores, will report its fiscal fourth quarter earnings Sept. 30.

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