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GOODLETTSVILLE, Tenn. — Dollar General Corp. is belatedly weighing a bid for Family Dollar Stores Inc., according to Bloomberg News.
Dollar General Corp. is belatedly weighing a bid for Family Dollar Stores Inc., according to Bloomberg News.
Citing "people with knowledge of the matter," the report said that Dollar General is working with an advisor to evaluate its options, with the knowledge that banks are prepared to fund a bid.
Two people reportedly told Bloomberg that Dollar General is now reevaluating its alternatives because the merger agreement between Family Dollar and Dollar Tree has drastically reduced the amount of time left for Dollar General to make a move.
However, the two sources reportedly cautioned that there is no guarantee a bid will be made, with one estimating the probability at 50%.
The recent announcement that Dollar General’s chairman and chief executive officer, Rick Dreiling, will retire by May 2015 has been seen as an obstacle to the company launching such a major acquisition.
Family Dollar had recently accepted an offer of $74.50 per share in cash and stock from Dollar Tree Inc., and the company’s shares have traded at or above that level since, suggesting that investors anticipate a higher offer will be made.
The combination of Family Dollar and Dollar Tree would create a combined company with approximately 13,000 stores and $18 billion in annual sales, which would move it ahead of Dollar General, which fields more than 11,000 stores that generate sales of $17.5 billion.
Dollar General’s main format is very similar to that of Family Dollar and appeals to the same demographic segment: the lower-income and lower-middle-income consumer.
The merchandising strategy and assortments of the two chains are highly similar as well, stressing an increasing number of consumable items to drive traffic, including tobacco products and beer. Both chains’ assortments include household products, apparel and seasonal items.
Dollar Tree, on the other hand, is the largest operator of true dollar stores offering a single price point, in contrast to both Family Dollar and Dollar General, which offer multiple price points. Dollar Tree also draws on a somewhat more affluent customer base with more middle-income shoppers.
Poonam Goyal, a senior retail analyst for Bloomberg Intelligence, contends that Dollar General might be able to derive greater benefits through cost cuts from a combination with Family Dollar because of the similarity of their businesses. However, that view fails to take into account the possibility of significant store divestitures that could result from a Dollar General buyout if regulators were to raise competitive issues. A Dollar Tree acquisition might involve far fewer divestitures precisely because of its differences with Family Dollar in store format, assortments and target customers.
