Family Dollar Adopts Poison Pill After Icahn Buys In -- Update

By Dow Jones Business News, 
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By Erin McCarthy

Family Dollar Stores Inc. unveiled on Monday a shareholder rights plan with a 10% trigger, an attempt to deter investors from gaining control of the discount retailer without first engaging in talks with management.

The move comes after activist investor Carl Icahn revealed on Friday a 9.4% stake in Family Dollar that consists mostly of stock options.

In emerging as a big shareholder of the Charlotte, N.C.-based retailer, Mr. Icahn joins a host of high-profile investors, including Nelson Peltz's Trian Fund Management LP and Paulson & Co., which also have large stakes in the company. Together, those investors own about 20% of Family Dollar, positioning them to exert greater control over the future of the company, which is underperforming its peers in the dollar-store space.

Family Dollar said the one-year rights plan, also known as a poison pill, isn't aimed at preventing an offer to acquire the company. Instead, such a move is designed to dilute the value of a stock when the trigger is hit by flooding the market with additional shares, making it expensive for an investor to acquire a controlling stake.

Mr. Icahn said late Friday that he plans to push the retailer's management to explore strategic changes. He also said he might seek board seats. In response, Family Dollar said its board and management is open to dialogue with all shareholders.

The company is at a crossroads in its retail strategy and is one of the few dollar stores cutting back its store growth plans. Early this year, Chief Executive Howard Levine said the chain was shelving a strategy that used price cuts on some items, while keeping others elevated, and instead would emulate the everyday low price model favored by rivals Dollar General Corp. and Wal-Mart Stores Inc.

News of Icahn's investment pushed Family Dollar's shares sharply higher Monday, briefly topping $70 a share to a level last seen in November.

A number of research firms have suggested that Family Dollar's days as a public company may be limited.

Analysts at MKM Partners said Family Dollar's management will likely have a tougher time rebuffing activists than it did in early 2011 when Mr. Peltz's fund made a $7 billion takeover approach that was rejected. MKM pointed to Family Dollar's underperformance relative to its dollar store peers and its languishing stock price.

The firm also suggested that Mr. Icahn could push for a merger of Family Dollar with Dollar General, nothing their similarities in size, product offerings and customer demographic. Sterne Agee, however, called that assumption a "knee- jerk reaction," saying it believes Dollar General took a hard look at Family Dollar last year and passed, potentially due to unfavorable real estate.

Considering Family Dollar's struggle to gain traffic, store closure plans and "poor leadership," Sterne Agee said fixing Family Dollar might better be done in a private forum.

A representative from Dollar General declined to comment.

Both Dollar General and Dollar Tree Inc. shares got a boost from the developments, with Dollar General touching an all-time high of $65.99, as analysts continued to play up their longer-term prospects.

Paul Ziobro contributed to this article.

Write to Erin McCarthy at erin.mccarthy@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires


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