Dollar Tree Earnings vs. Dollar General and Family Dollar Merger

While many eyes are on the report, the real issue may be the merger war taking place that involves Dollar General Corp. (NYSE: DG) and Family Dollar Stores Inc. (NYSE: FDO).

On Dollar Tree’s earnings, Canaccord Genuity maintained a Hold rating for Dollar Tree and moved up its price target to $62 from $50 on November 19. Deutsche Bank maintained a Buy rating and raised its price target to $66 from $60 on November 10.

Shares of Dollar Tree were up 1% at $62.63 in the last hour of trading Wednesday. The stock has a consensus analyst price target of $61.99 and a 52-week trading range of $49.59 to $62.72. It has a market cap of almost $13 billion.

Dollar General affirmed Wednesday that it is committed to the acquisition of Family Dollar. Dollar General stated in its press release:

Dollar General is actively engaged in discussions with the Federal Trade Commission (“FTC”) regarding the extent of potential divestitures that would be required in connection with an acquisition of Family Dollar and has been making good progress. Dollar General will continue to work with the FTC and expects to provide an update in the coming weeks to allow Family Dollar shareholders sufficient time to review such information prior to the Family Dollar shareholders’ meeting now scheduled for December 23, 2014.

Currently, Family Dollar has delayed the shareholder vote on its $8.5 billion deal to be bought by Dollar Tree as it awaits an update on the divestitures that U.S. antitrust regulators will require to approve the deal. Family Dollar expects an update by the end of the first week of December from the FTC on its review of the merger.

Sterne Agee maintained a Buy rating for Dollar General and listed its probability for different scenarios in the acquisition of Family Dollar:

• 10% terminate the deal
• 40% keep bid at $80 and close 4,000+ stores
• 40% raise bid to $85 and keep 1,500 store closures
• 10% bail on the deal and bid for Dollar Tree instead

Shares of Family Dollar were down less than 1% to $78.39 Wednesday. The stock has a consensus analyst price target of $72.76 and a 52-week trading range $55.64 to $80.97

Shares of Dollar General were down less than 1% to $65.91. The consensus analyst price target is $71.83, and the 52-week trading range is $53.00 to $66.29.

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