In a letter to Family Dollar’s board of directors, Dollar General CEO Rick Dreiling said that Dollar General would increase the number of stores it would divest from 700 to 1,500 and agree to pay a $500 million reverse break-up fee if the Federal Trade Commission (FTC) should reject the acquisition.
Discussing the competitive landscape in the super-discount space, Dreiling said that Wal-Mart Stores Inc. (NYSE: WMT), not Family Dollar, “is the primary driver regarding Dollar General’s strategic and pricing decisions.” The potential acquirer also noted that 75% of its items are nationally priced and that Dollar General’s competitive market includes a variety of retail outlets, “including mass, club, drug and grocery, as well as independent retailers,” all of which place constraints on the company’s pricing policies. Dreiling emphasizes that based on what Dollar General knows about Family Dollar’s business together with the divestiture proposal would pass FTC muster.
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Dreiling also warned that if Family Dollar does not engage in discussions with Dollar General in order to enter a definitive merger agreement, “[W]e will consider taking our persuasive and superior proposal directly to your shareholders.”
One of those shareholders is activist investor Carl Icahn, and although he has not commented on his position, it seems safe to say that he would prefer more, rather than less, cash. Icahn’s comment when Dollar Tree made its first offer pretty much captures this view:
While we continue to believe there are a handful of potential buyers who could realize greater synergies through a combination with Family Dollar and are hopeful that one or more of them will surface as a result of today’s announcement …
An offer has surfaced, and Family Dollar has so far refused to consider it. Such a refusal is not likely to happen this time around.
Dollar General’s stock traded up about 1.2% early Tuesday morning, at $64.74 in a 52-week range of $53.00 to $65.99.
Family Dollar’s stock traded up about 0.5%, at $80.23 in a 52-week range of $55.64 to $80.97, and that high was set early Tuesday morning.
Dollar Tree traded up about 1.6%, at $54.48 in a 52-week range of $49.59 to $60.19.
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