Merger fight between three US discount stores to hot up today
10 Sep 2014
A merger fight between three discount stores is likely to heat up today as retailer Dollar General plans take its $9.1-billion offer for Family Dollar Stores Inc straight to its target's shareholders The Wall Street Journal reported, citing a person familiar with the matter.
Family Dollar has rejected the takeover offer so far, with its board turning down Dollar General's plan. The company is now turning to shareholders with a $80 a share offer, which was just above Family Dollar's Tuesday closing price of $78.70.
Against this, Family Dollar had agreed to be bought by Dollar Tree for $8.5 billion, which values the Dollar Tree offer at $74.50 per share, lower than Dollar General's offer (See: Family Dollar rejects $9-bn Dollar General offer, accepts lower bid from Dollar Tree). http://www.domain-b.com
Approaching shareholders would not be much of a surprise and when Dollar General increased its bid for Family Dollar earlier this month, analysts had said the writing was on the wall for the deal to go through, but Dollar General needed to go straight to Family Dollar shareholders.
The move was risky according to The Wall Street Journal, as Dollar General would be offering to buy Family Dollar without access to confidential financial information.
Family Dollar, had rejected Dollar General's unsolicited approaches citing antitrust risks.
According to commentators the expected hostile move could lead to a protracted takeover battle involving the US' three largest US dollar-store operators, at a time when these retailers were under increasing competition from retailers like Wal-Mart and Target Corp.
The most recent offer by Dollar General saw the addition of a $500 million break-up fee and upped the number of stores it was willing to sell to get antitrust approval to 1,500 from 700 (Dollar General raises bid for Family Dollar, ready to go hostile).
According to people familiar with the matter, Dollar General believed the new terms eliminated the anti-trust risk for Family Dollar. However, the sweetened bid was rejected by the company, saying it still did not give the company sufficient protection.
Family Dollar wants Dollar General to take full responsibility for the deal getting shot down by US regulators through a so-called "hell or high water" clause before agreeing to negotiate. A clause of the type would commit the company to doing whatever it took to complete the deal, such as carrying out any divestiture that antitrust regulators ask for.
Dollar General was however not willing to offer such an assurance, partly because doing so could see the retailer at the mercy of the antitrust regulators, who could demand huge divestitures, according to people familiar with the matter.
Dollar General also believed it had already offered far more divestitures than was necessary to secure regulatory approval, according to the people. While it was willing to sell off up to 1,500 stores if required by the US Federal Trade Commission, it still believed that the FTC would ask for far fewer to be divested, around 700, the people added.
