Family Dollar’s board of directors told shareholders Wednesday not to sell their stock to rival Dollar General, which is trying to buy the discount retailer in a $9.1 billion hostile bid.
The board’s recommendation, filed early Wednesday in securities documents, doesn’t come as a surprise. Family Dollar’s board has twice rejected Dollar General’s advances, first at $78.50 a share and then at $80 a share. Rather than be acquired by Dollar General, Family Dollar’s board wants the company, based in suburban Charlotte, N.C., to be acquired by Dollar Tree, a deal it agreed to in July.
While Dollar Tree has offered less money – $74.50 a share in cash and stock, for a total of $8.5 billion – Family Dollar’s board has said the company’s offer is more likely to be approved by federal regulators. Family Dollar laid out its most detailed case Wednesday for why its board thinks antitrust regulators would reject a combination with Dollar General, noting that 6,000 Family Dollar stores compete with a Dollar General store within three miles.
In telling shareholders not to tender their shares to Dollar General, Family Dollar CEO Howard Levine said the deal would not be approved by the Federal Trade Commission.
“This highly conditional offer is illusory because, as Dollar General is well aware, the offer cannot close on the terms proposed,” said Levine, in a statement. “Tenders into the Dollar General offer will be meaningless since there is no way that Dollar General can purchase shares that are tendered. There is a very real and material risk that the transaction proposed by Dollar General would fail to close, after a lengthy and disruptive review process.”
Dollar General has promised to divest up to 1,500 of the combined company’s 20,000 stores to win approval for a Family Dollar acquisition. Dollar Tree, which is smaller than either of its two rivals, has said it will sell as many stores as regulators require in order to close the deal with Family Dollar.
The Dollar Tree-Family Dollar deal still requires shareholder approval. A date for a shareholder vote hasn’t been set. Dollar General has gone directly to Family Dollar shareholders with its offer, seeking to break up the Dollar Tree deal and force Family Dollar to the table.
So far, Family Dollar’s two largest shareholders – Levine and activist fund Trian Fund Management – have committed to vote for the Dollar Tree deal. They own about 16 percent of shares outstanding. Investor John Paulson’s hedge fund is the third-largest owner, with 7 percent of shares. That company hasn’t said how it will vote.
Dollar General could not immediately be reached Wednesday.