Dollar General Announces Competing Bid for Family Dollar

(The Charlotte Observer/MCT) -

Dollar General has offered to buy North Carolina-based Family Dollar in a $9.7 billion deal, upsetting a recently announced acquisition by another rival and potentially kicking off a bidding war for one of Charlotte’s most prominent homegrown retailers.

Tennessee-based Dollar General announced its offer Monday morning. The company is bidding $78.50 a share for Family Dollar. That’s $4 a share, or 5.4 percent, higher than Dollar Tree’s offer, which Family Dollar agreed to last month.

Dollar General CEO Rick Dreiling told investors that his company’s offer is a better deal for Family Dollar’s shareholders, both because it has a higher price and doesn’t include stock. Dollar Tree’s cash-and-stock deal includes $59.60 a share in cash and $14.90 worth of Dollar Tree stock for each share of Family Dollar.

“Coupled with the certainty of an all-cash offer, we believe our proposal is far superior for Family Dollar shareholders,” said Dreiling during a conference call. “We believe that Family Dollar’s board and management team will recognize the superiority of our proposal.”

In addition to throwing the Dollar Tree deal into question, the announcement potentially creates more uncertainty for the Charlotte region. Dollar Tree and Family Dollar have said they expect to keep many of the 1,400 corporate jobs at the company’s suburban headquarters, which would function as a co-headquarters alongside Dollar Tree’s Chesapeake, Va., offices. Dollar Tree also plans to keep the Family Dollar name on many of the combined company’s stores.

Dollar General didn’t say early Monday what it might do with the headquarters or with the Family Dollar name.

“It’s a little soon for all of that right now,” Dreiling told analysts when asked whether the company would keep the Family Dollar brand. “We’re more focused on the inside of the box as opposed to what the sign is on the outside.”

Dollar Tree and Family Dollar have very different retail strategies – everything at Dollar Tree sells for $1, while Family Dollar has many price points – so executives said having separate headquarters makes sense.

But Dollar General and Family Dollar have very similar strategies, and analysts have speculated that would allow the companies to consolidate more functions and save more. The company told investors it expects to generate at least $550 million worth of synergies with Family Dollar.

“The business models and product mixes of Dollar General and Family Dollar are highly complementary,” Dollar General said Monday. “There is opportunity to more efficiently and effectively manage the Family Dollar portfolio of stores given Dollar General’s strong track record of success in improving its own profitability since 2008.”

A Family Dollar representative could not immediately be reached. A Dollar Tree representative declined to comment.

Erik Gordon, a business professor at the University of Michigan’s Ross School of Business, said that while Dollar Tree seems more motivated to buy Family Dollar, Dollar General can afford to pay more than Dollar Tree.

He suggested that the overlapping business models of Dollar General and Family Dollar could mean sharper cuts to Family Dollar’s Charlotte-area headquarters.

“If I were in Charlotte, I’d be more worried about Dollar General,” he said. “In the end, I think Dollar General can put more money on the table, and those are the guys who usually win.”

Wayne Hood, an analyst with BMO Capital Markets, said he believes Dollar General can afford to bid as high as $85 per share.

“We would not be surprised if (Dollar Tree) were to make a counteroffer, but it could be difficult to make a superior all-cash bid much above $80 per share without more synergy savings.”