If Dollar Tree is able to overcome Monday’s raised bid from Dollar General Corp. (NYSE: DG), the combined pro forma market value of Dollar Tree and Family Dollar would rise above Dollar General’s. In a sector where volume rules, that could mark the beginning of a long slide to irrelevance for Dollar General, and the market leader can’t afford to have that happen.
Dollar General’s all-cash offer of $78.50 a share for Family Dollar totals about $1.2 billion more than the $74.50 cash-and-stock offer from Dollar Tree. About all Dollar Tree could do to match that offer would be to print up more stock, and that would irritate current shareholders and not do much to attract more positive votes from Family Dollar stockholders. Cash speaks louder than diluted stock every time.
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Are there any other potential bidders? One could argue that Wal-Mart Stores Inc. (NYSE: WMT) might make a play for Family Dollar, but the world’s largest retailer would probably only do so if it were planning to dump the brand and convert some of the locations into Walmart’s smaller Neighborhood Market stores. Such a move makes sense, depending on the locations of the Family Dollar stores, because it would save Walmart the headache of having to battle for permission to build new stores. Still, it’s a very long shot.
Walmart might also think about targeting Dollar General and keeping the brand as an entry into the super-discount sector. The problem there is that the sector has probably seen its last growth spurt for a while — or perhaps even for all time. The super-discounters’ heyday was during the economic downturn of 2008 and 2009, and none of the chains has been able to show significant growth since. Dollar General’s sales got a jolt in late 2012 when it introduced consumables, including tobacco products, at its stores, but that growth is slowing now.
Dollar General’s shares traded up about 9.8% late Monday morning, at $63.06 in a 52-week range of $53.00 to $65.99.
Family Dollar’s stock traded up about 4.7%, at $79.61 after posting a new 52-week high of $80.90 earlier in the day.
Dollar Tree traded down about 1.8%, at $54.61 in a 52-week range of $49.59 to $60.19.
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