The dollar store bubble
Family Dollar has deals coming from every direction. AG covered the news of the Dollar Tree/Family Dollar merger in July, but now there is another bid on the table. The latest bid comes from Dollar General to the tune of $9.7 billion.
Even though the offer from Dollar Tree was less, at $8.5 billion, Family Dollar has decidd to stick with it. The New York Times reports Family Dollar cites “significant antitust issues” as the reason for rejecting Dollar General’s offer.
Dollar General’s proposed offer included all cask, as opposed to Dollar Tree’s combo offer of cash and stock. The Dollar General bid was approximately, $78.50 per Family Dollar Share, which toppled Dollar Tree’s offer of $74.50 per share by an approximate $8.5 billion. CEO of Family Dollar, Howard Levine states that the board’s decision to reject Dollar General’s offer was unanimous and showed respect for their deal with Dollar Tree.
However the CEO of Dollar General, Rick Dreiling, does not seem to think the deal-making is over. Dreiling stated they “have done extensive antitrust analysis.”
So is there a deal or not?
Other sources concur; Deutsche Bank analyst, Paul Trussell stated, “It is clear through the most recent releases that we’ve seen that Dollar General is very serious about getting this deal done. I would not be surprised to see Dollar General present a tender offer to Family Dollar shareholders themselves.”
Edward P. Garden, an executive at Trian Fund Management, run by Nelson Peltz, which also owns a 7.3 percent stake in Family Dollar, states, “given the significant antitrust issues involved with Dollar General’s proposal, we will not jeopardize the Dollar Tree deal for a transaction with Dollar General that has a high likelihood of not closing due to antitrust considerations.”
The Dollar General rejection came less than twelve hours after aforementioned CEO Levine, was accused by Dollar General not maximizing the value of the corporation for shareholders. In the rejection notice, Levine states that their rejection was based on a simpler concern: combining the country’s two biggest dollar stores would pose serious risk of rejection from antitrust-regulators (according to the New York Times).
Family Dollar did acknowledge Dollar General had mentioned the possibility of a merger for the past year and a half, but stated Dollar General repeatedly canceled meetings, most notable one in June, which was scheduled to address antitrust issues. In fact, Family Dollar states the last time both companies met, no interest was expressed in continuing to pursue the deal. Shortly after this meeting, Family Dollar signed a nondisclosure agreement with Dollar Tree preventing any further mention of their merger.
It looks like, at least for the moment, that the Dollar Tree deal will remain in place. But there is a small possibility it could change.