Family Dollar Stores Inc.
) rejected the $9.7 billion bid by its rival Dollar General
) citing difficulty to win over antitrust regulatory concerns and
has decided to stick with Dollar Tree Inc. (
Dollar General has expressed disappointment over failure of the
deal, stating that the company has already done extensive research
and was confident of satisfying the antitrust concerns. Moreover,
Rick Dreiling, CEO of Dollar General, has accused Family Dollar CEO
Howard Levine of protecting his vested interests by tying up with
Dollar Tree even as Dollar General's bid was financially superior
to Dollar Tree's.
Dollar General had offered $9.7 billion for the buyout as against
Dollar Tree's $9.2 billion bid and was willing to pay the $305
million break-up fee that it would owe Dollar Tree if the deal was
A giant in the small-box discount retail space would have
been created from the merger of Dollar General and Family Dollar,
throwing serious competition to retail giants like Wal-Mart Stores
). The combined company could have operated close to 20,000 stores
in 46 states. Dollar General expected revenues to hit $28 billion
and for the deal to generate synergies of $550 million to $600
million on an annual rate three years after the deal closed.
In contrast, Dollar Tree and Family Dollar Union will create 13,000
stores in 48 states with combined sales of roughly $18 billion.
Nevertheless, for Family Dollar, which has been troubled for some
time now, the Dollar Tree deal will be a much needed breath of
fresh air. The tepid economic recovery and heightened competition
from other big brick and mortar retailers along with online giants
has affected its profitability. In the recently concluded quarter,
the company saw its earnings per share declining 19% year over
year. Billionaire investor Carl Icahn, holding a 3.6% stake in
Matthews, NC-based Family Dollar, had long been pushing for the
sale of the company.
The acquisition will enhance the buying power of the pair,
providing better negotiating terms against suppliers. The combined
company will be able to offer broader and multiple assortments at
more compelling prices. Moreover, the transaction will help in
achieving operational and distributional efficiencies as well as
cost synergies. Dollar Store anticipates savings of $300 million in
annual costs by the end of the third year, after the deal is
Post acquisition, the companies will be able to tap new markets,
enhance market share in existing ones, extend the sales channel and
generate significant free cash flow to increase store count and
Currently, both Family Dollar and Dollar Tree carry a Zacks Rank #3
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FAMILY DOLLAR (FDO): Free Stock Analysis Report
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