By Dow Jones Business News,
July 28, 2014, 06:55:00 AM EDT
Dollar Tree to Buy Family Dollar
Dollar Tree Inc. said it would buy rival Family Dollar for about $8.5 billion amid an intensifying battle for
America's poorest consumers.
The two companies have put pressure on discounting giant Wal-Mart Stores Inc. with their more manageable smaller
stores and frequently lower prices. But they themselves have been pressured by slowing sales growth as low-income
shoppers struggle to recover from the recession.
A deal between the two dollar stores would create a 13,000 store company with the scale to command better prices from
suppliers and opportunities to cut costs by rejiggering store fleets and reducing overhead. It also would help Dollar
Tree get into more urban markets and have the flexibility to sell a broader range of prices.
The combined company would have more than $18 billion in sales and be a much more formidable competitor to larger
rival Dollar General, as well as to big box chains like Wal-Mart and Target Corp., which are moving into dollar store
territory with smaller store formats.
While the two companies share Dollar in their names, they follow quite different strategies. Dollar Tree actually
sells all items for a dollar or less and focuses on suburban markets. Family Dollar, meanwhile, sells goods at a range
of discounted prices and targets the urban and rural poor.
The company plans to maintain each brand. Dollar Tree Chief Executive Bob Sasser, who will lead the combined entity,
stressed that the two chains don't have too much overlap. Executives said they don't plan on closing stores but may turn
some Family Dollar stores into Dollar Trees, or vice versa, where the existing stores are underperforming.
"Industry trends and outlook are positive for the combined businesses with low and middle income customers continuing
to look for ways to balance their budgets and stretch their dollars," Mr. Sasser said.
The dollar store category of stores has thrived since the recession, as shoppers sought ways to save money and make
quicker trips than were possible at giant Wal-Mart stores. Family Dollar, however, stumbled with a strategy to raise
some prices offset by targeted deep discounts.
In January, Family Dollar reversed course by cutting prices on nearly 1,000 items. It also planned to close 370 stores
this year and slow down new-store openings.
The chain's struggles caught the attention of activist investor Carl Icahn, who last month mounted a public campaign
for the company to put itself up for sales. The billionaire also criticized Family Dollar's chairman and chief
executive, Howard Levine, for poor managerial decisions. Mr. Icahn called for ousting Family Dollar's board and strongly
argued that the larger and better-run discounter Dollar General should buy the company.
Instead, it was Dollar Tree, a chain that sells thousands of household supplies and other tchotchkes for $1 or less,
that swooped in. Dollar Tree's Mr. Sasser said the two sides have been working on the deal for "several months."
Mr. Icahn said Monday that he continues to believe there are a handful of potential buyers that could see greater
synergies through a combination with Family Dollar and is hopeful that one or more of them will weigh in.
He added, however, that he is extremely pleased with Dollar Tree's intention to buy the company.
"This is a big win for all shareholders of Family Dollar and yet another validation of the activist investment
philosophy in general," he said in a prepared statement.
Mr. Levine, whose father, Leon, opened the first Family Dollar in 1959, will remain with the combined company,
reporting to Mr. Sasser, and join the board.
The purchase price of $74.50 a share is a 23% premium to Family Dollar's closing stock price Friday. Mr. Levine and
Nelson Peltz's Trian Fund Management LP, who together own 16% of Family Dollar shares, both said they would vote in
favor of the deal. The closing is scheduled for early 2015.
Trian, which has had a representative on Family Dollar's board since 2001, said the deal would make the company part
of a stronger organization.
Shares in Family Dollar rose 23% to $74.56 in midday trading. Dollar Tree's shares gained 3.4% to $56.05. The
companies expect to save about $300 million a year as a result of the deal, largely through better buying power and
consolidation of their distribution networks.
Write to Paul Ziobro at Paul.Ziobro@wsj.com and Anna Prior at firstname.lastname@example.org
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