Dollar General bids $8.95 bn for Family Dollar Stores
19 Aug 2014
Dollar General Corp offered $8.95 billion to acquire Family Dollar Stores Inc, putting in a bid higher than that of Dollar Tree Inc Reuters reported.
Shares of Family Dollar, the No 2 US discount chain, were up 5 per cent to $79.87, above the offer price of $78.50 per share in cash, in a sign the market expected an upcoming bidding war.
According to Joseph Feldman, analyst at Telesey Advisory Group, both Dollar General and Dollar Tree had some capacity to go a little bit higher with the offer price.
Dollar stores had been a popular choice for US consumers in a weak economy, with competition for price sensitive customers hotting up, particularly as Wal-Mart Stores Inc opened more small-format stores.
According to Barbara Kahn, a professor at Wharton, the companies were trying to rally forces in order to compete more effectively.
Many large retailers servicing the low income market segments reported disappointing quarterly sales at their established stores last week, revealing tighter control over expenses as also a shift in preferences to stores nearer to home.
According to Dollar General, its offer would create a business with 20,000 stores in 46 states and sales of over $28 billion, The Christian Science Monitor reported.
The Goodlettsville, Tennessee, company expects annual savings at $550 million to $600 million three years after the transaction closes.
Dollar General and Family Dollar sell products at various prices, while at Dollar Tree, everything at the store carries a price tag of just a buck.
Family Dollar is drawing bids as the business struggles to stay afloat. The Charlotte, North Carolina company had been closing down stores and cutting prices to improve financial performance. In June investor Carl Icahn called on the company to put itself up for sale.
According to Dollar General, it believed it could quickly and effectively address any antitrust issues and could divest up to 700 of its stores in order to get the necessary approvals for the transaction.
Dollar Tree had agreed to divest 500 of its US stores for its proposed deal.
If a deal were to go through, Dollar General chairman and CEO Rick Dreiling would postpone his retirement until May 2016 in order to integrate the two companies. The company had announced in June that Dreiling had planned to retire in May 2015, or when a successor was appointed.
He had agreed to stay on as chairman during the transition process.
