Dollar General gets aggressive with new $9.1B bid for Family Dollar
Dollar聽General upped its bid for the rival聽Family聽Dollar聽chain and addressed an earlier roadblock, saying that it will more than double the number of stores it would shed to tamp down the antitrust concerns of its takeover target.
The newest bid is worth $9.1 billion, or $80 per share, up from $78.50 per share in the previous offer.
Family聽Dollar, based in Matthews, North Carolina, rejected the earlier bid in favor of a lesser offer of $8.5 billion from聽Dollar聽Tree Inc., saying that regulators were less likely to stand in the way.
On Tuesday聽Dollar聽General, the country's largest dollar-store chain, said it would divest as many as 1,500 stores, well above the 700 that it had originally agreed to, in order to sidestep any anti-monopoly actions that regulators might pursue.
The Goodlettsville, Tennessee company has also said it will pay a $500 million reverse break-up fee to聽Family聽Dollar聽Stores Inc. if the deal hits antitrust roadblocks.
Dollar聽General Chairman and CEO Rick Dreiling said that a second antitrust review supported its prior bid, but that its offer was revised "to demonstrate the seriousness of our commitment."
The businesses of聽Family聽Dollar聽and聽Dollar聽General are more similar than聽Dollar聽Tree's. The first two sell items at a variety of prices while at Dollar聽Tree, all items are a buck.
Family聽Dollar聽has been looking for a lifeline after running into some financial stress, shuttering stores and cutting prices. In June one big shareholder, Carl Icahn, urged the company to put itself up for sale.
Family聽Dollar聽acted one month later, accepting an offer from Chesapeake, Virginia-based聽Dollar聽Tree Inc. of $59.60 in cash and the equivalent of $14.90 in shares of聽Dollar聽Tree for each share held. The companies valued the transaction at $74.50 per share at the time. Including debt and other costs,聽Family聽Dollar聽and聽Dollar聽Tree estimated the deal to be worth approximately $9.2 billion.
Last month聽Dollar聽Tree Inc. made an $8.5 billion bid for聽Family聽Dollar. It offered to pay $59.60 in cash and the equivalent of $14.90 in shares of聽Dollar聽Tree for each share they own. The companies put the value of the transaction at $74.50 per share at the time. Including debt and other costs, the companies estimated the transaction to be worth approximately $9.2 billion.
Dollar聽General 聽has said that its offer would create a business with almost 20,000 stores in 46 states and sales of more than $28 billion. The聽Goodlettsville, Tennessee, company anticipates annual savings of $550 million to $600 million three years after the transaction closes.
Dollar聽stores grew during the recession as people across income groups searched for cheaper options. To attract a broader array of customers, they also expanded their offerings to include more groceries and brand-name products, instead of just the party favors and other knickknacks people often associated with them.
More recently, however, sales at聽dollar聽stores have been suffering because the lower-income customers who go to them are facing persistent job instability and slow wage growth in the aftermath of the recession. Wal-Mart Stores Inc. and Kroger Co. also have been opening smaller store formats to directly compete with聽dollar聽stores.
After enjoying rapid expansion during the recession,聽Family Dollar聽has stumbled in recent months, announcing the closure of 370 stores back in April. As the Monitor's Patrick Jonsson聽reported in April,聽bad news for dollar stores could mean good news for the US economy:聽
That turnarnound in investor sentiment may suggest a rumble of change in the American economy. After a half-decade of economic headwinds, Americans are, bit by bit, feeling richer as household worth has hit 5.1 percent annual growth. That, in turn, means more Americans may be eschewing the cut-rate merchandisers in favor of Walmart or even the mall.
鈥淭he current recovery period has been characterized by slower growth in household asset values than in previous recoveries, and until recently, muted growth in house prices,鈥� writes LaVaughn Henry of the聽Cleveland Federal Reserve聽in a February analysis. 鈥淗owever, despite consumers being somewhat constrained in their ability to draw from expanding income and wealth sources during the recovery, the growth in their consumption remains stronger than one might expect.鈥�
Others doubt that trend is really what鈥檚 at work in the dollar store segment. Americans are saving more than before the recession, and food stamp spending continues to rise, suggesting that the bargain lot business is still a good one,聽.
鈥淲hile the economy is recovering as a whole, times are still very tough for a lot of people 鈥� including most of those who make up dollar stores鈥� target audience,鈥� writes Mr. Aziz.聽
Family Dollar blamed the harsh winter for its disappointing returns, with profits down by 14 percent. But analysts say hefty local competition from other ultra-discounters and just regular discounters like Target and Walmart is what may really be at play.
鈥淭he saturated low-end marketplace makes it even more important for each retail chain to run a tight ship,鈥澛�. 鈥淭he company with the best management 鈥� is the one that can afford to offer the lowest price.鈥澛�
Shares of聽Family聽Dollar聽added 67 cents to $80.50 in premarket trading Tuesday, while聽Dollar聽General's stock gained $1.08 to $65.07.
