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MATTHEWS, N.C. — In urging shareholders to ignore Dollar General Corp.’s tender offer of $80 per share for their stock, the directors of Family Dollar Stores Inc. have insisted that antitrust regulators would not look kindly upon a combination of the nation’s two largest dollar store chains.
In urging shareholders to ignore Dollar General Corp.’s tender offer of $80 per share for their stock, the directors of Family Dollar Stores Inc. have insisted that antitrust regulators would not look kindly upon a combination of the nation’s two largest dollar store chains.
Howard Levine, Family Dollar’s chairman and chief executive officer, called Dollar General’s all-cash tender offer “illusory,” and said it would not be approved by Federal Trade Commission officials worried about a loss of competition.
More than 6,000 of Family Dollar’s 8,200 stores are within a three-mile radius of a Dollar General store, the company said, and the two companies have "nearly identical store formats and product mixes."
At more than 1,500 of those stores, Family Dollar said, there is no competition from a nearby Walmart, and pricing is based "solely on the presence of local Dollar General stores."
"The FTC is likely to take the position that Family Dollar’s pricing model would immediately lead to higher prices in thousands of locations if Dollar General was no longer an independent competitor," Family Dollar said.
Family Dollar’s board on September 17 unanimously reiterated its support for a buyout bid from Dollar Tree Stores Inc. and expressed confidence that the deal could pass regulatory muster. Dollar Tree offered in July to acquire Family Dollar for $74.50 per share in a combination of $59.60 cash and $14.90 in Dollar Tree stock, valuing Family Dollar at $8.5 billion.
Also on September 17, Family Dollar presented a detailed account of the acquisition talks in a filing with the Securities and Exchange Commission. The filing details a meeting in 2013 between Levine and Rick Dreiling, Dollar General’s chairman and CEO, to discuss a buyout in which Levine agreed that the combined companies would be headquartered in Tennessee and run by Dollar General’s management.
This account runs counter to Dollar General’s argument that Levine, the son of company founder Leon Levine, favors a buyout bid from Dollar Tree because it would provide Levine with a seat on the combined company’s board for at least two years. Dollar Tree, headquartered in Chesapeake, Va., has also agreed to keep the Family Dollar name, and would likely make less draconian cuts to Family Dollar’s operations.
Dollar Tree, the smallest of the three companies, has pledged to close or sell as many stores as regulators require in order to close the deal with Family Dollar.
Dollar Tree offers goods priced at $1 and caters predominately to cash-strapped customers.
Family Dollar describes its typical shopper as female and living in a household with an income of less than $40,000 a year (under $20,000 for about a quarter of customers), who walks into a Family Dollar store with $10 to spend. Dollar General’s business model more closely resembles Family Dollar’s: Both offer household products, health and beauty aids, apparel, food and seasonal items at a range of price points. About 25% of the merchandise offered by Dollar General costs $1 or less.
Dreiling and Dollar General have offered to sell or close up to 1,500 stores to make a combination with Family Dollar more amenable to regulators.
"Dollar General has invested significant time and resources in pursuit of this acquisition and remains committed to its successful completion. Family Dollar continues to make statements that are not worthy of debate," Dreiling said on September 17. "Rather than engaging with us in a meaningful and constructive manner, the Family Dollar board has continued its efforts to distract shareholders from the main issue at hand — that a superior proposal adequately addressing antitrust issues remains on the table. Through our tender offer, Dollar General has provided all Family Dollar shareholders a voice in this process, and we urge them to tender into our offer."
Dollar General’s $9.1 billion tender offer to buy the company runs through October 8.
Family Dollar’s two biggest shareholders — Levine and New York investment firm Trian Fund Management LP, which collectively own about one-sixth of the outstanding shares — are strongly advocating the Dollar Tree deal.
Levine is warning that an antitrust review of Dollar General’s bid could drag on for months, leaving Family Dollar shareholders and employees in limbo.
Dollar Tree’s offer still needs to be OK’d by Family Dollar shareholders.
