Dollar General on Tuesday upped its bid to buy Family Dollar, sweetening its all-cash offer and adding safeguards aimed at soothing Family Dollar’s concerns over possible antitrust issues.
The fattened $9.1 billion offer could make it harder for Family Dollar’s board to say no to a deal that analysts say would likely result in the dismantling of the suburban Charlotte, N.C., headquarters where Family Dollar employs some 1,400 corporate workers.
Family Dollar in July announced it had reached an agreement on a $74.50-per-share, cash-and-stock deal with Virginia-based Dollar Tree. But the bigger, Tennessee-based Dollar General last month offered to buy Family Dollar in a $78.50-per-share, all-cash deal – $4 a share, or 5.4 percent, higher than the Dollar Tree offer.
Family Dollar rejected Dollar General’s offer four days after receiving it; Family Dollar CEO Howard Levine cited antitrust issues, noting that the combined company would have many overlapping locations and would be more than three times bigger than Dollar Tree, its next-largest rival.
In its latest offer, Dollar General said it would now pay $80 per share, noting that that bid represents a 31.9 percent premium over Family Dollar’s closing stock price on the day before the Dollar Tree deal was announced.
Dollar General also said it would be willing to divest itself of as many as 1,500 stores rather than the 700 it initially said it would shed to avoid problems with federal antitrust regulators.
Dollar General said it was so confident in its deal that it offered to pay a $500 million reverse break-up fee to Family Dollar should antitrust regulators block it.
In a letter to Family Dollar’s board Tuesday, Dollar General CEO Rick Dreiling said his company had been “extremely disappointed” that its first bid had been rejected without discussions between the two companies.
He urged the Family Dollar board to come to the negotiating table.
“Only by engaging with us can you ensure that you have fulfilled your duty to your shareholders to be well-informed and that you have acted in the best interests of your shareholders to maximize the value of their shares,” he wrote.
Family Dollar said in a prepared statement that it had received the latest offer and would review it. The statement added: “The company’s board of directors has not changed its recommendation in support of the merger with Dollar Tree.”
A spokesman for Dollar Tree said the company had no comment.
The latest Dollar General offer “more than adequately” addresses the antitrust concerns, BB&T Capital Markets analyst Anthony Chukumba and associate Dan Cannata wrote in a research note Tuesday.
“We think Family Dollar’s board will be hard pressed to justify rejecting Dollar General’s revised offer without risking backlash from its shareholders,” they wrote. “We would not be surprised to see Dollar Tree simply walk away if Family Dollar agrees to the Dollar General offer.”
Dollar Tree and Family Dollar have very different retail strategies – everything at Dollar Tree sells for $1, while Family Dollar has many price points. Dollar General, on the other hand, has a business model virtually identical to Family Dollar’s. Analysts have said that means more duplicate functions could be cut in a merger, likely at the Matthews headquarters.
The proposed Dollar Tree deal, announced July 28, envisions Dollar Tree and Family Dollar keeping many of the corporate jobs in suburban Charlotte. Levine would stay on at the combined company for at least two years, reporting to Dollar Tree CEO Bob Sasser. Dollar Tree also plans to keep the Family Dollar name on many of the combined company’s stores.
Dollar General hasn’t said what it might do with the Family Dollar headquarters jobs or the Family Dollar name, or what Levine’s role would be.