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Dollar Tree, Family Dollar join forces in $8.5 billion deal

Dollar Tree is buying rival discount store Family Dollar in a cash-and-stock deal valued at about $8.5 billion. Dollar Tree, which said on Monday its offer had been approved by Family Dollar's board, will have about 13,000 stores across the United States and Canada once the deal closes.

Dollar聽Tree is buying rival discount store聽Family聽Dollar聽in a cash-and-stock deal valued at about $8.5 billion.

Stockholders of聽Family聽Dollar聽Stores will receive $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, which is an approximately 23 percent premium toFamily聽Dollar's聽Friday closing price of $60.66.

Family聽Dollar聽stockholders will own somewhere between 12.7 percent and 15.1 percent of聽Dollar聽Tree's outstanding common shares at closing.

Core customers for bargain stores and major retailers like Wal-Mart have been among the hardest hit by the recession and its aftermath because of job instability.

Family聽Dollar聽has struggled and has attempted to reinvigorate sales by lowering prices on almost 1,000 basic items. It's cut some jobs and shuttered underperforming stores. The company had been conducting a strategic review since the winter, and investor Carl Icahn urged Family聽Dollar聽last month to put itself up for sale.

Dollar聽Tree CEO Bob Sasser said Monday that the deal will give聽Dollar聽Tree more than 13,000 stores in the U.S. and Canada. That is nearly three times as many stores as Wal-Mart Stores Inc., though Wal-Mart's square footage is still greater.

The combined聽Dollar聽Tree-Family聽Dollar聽chain will have sales of more than $18 billion and Sasser says that the transaction will create a more diverse company with an enhanced geographic reach.

Dollar聽Tree stores sell products for $1 or less, while聽Family聽Dollar's聽pricing is much broader.

Dollar聽Tree will continue to operate under the existing聽Dollar聽Tree, Deals, and聽Dollar聽Tree Canada store signs. It will keep the聽Family聽Dollarbrand as well.

Family聽Dollar聽Chairman and CEO Howard Levine will still lead those stores and report to Sasser. He will join聽Dollar聽Tree's board.

Dollar聽Tree plans to finance the deal with available cash, bank debt and bonds.

The boards of both companies have unanimously approved the deal, which is expected to close by early next year. It still needs approval from聽Family聽Dollar聽shareholders.

Shares of聽Family聽Dollar聽Stores Inc., based in Charlotte, North Carolina, surged more than 21 percent before the opening bell. Shares ofDollar聽Tree Inc., based in Chesapeake, Virginia, are up more than 3 percent.

As Reuters reported early this morning:

Dollar聽Tree, whose products cost $1 or less, caters to the middle class. While聽Family聽Dollar聽also sells many items priced at $1 or less, it stocks items priced $1-$5 and higher as well.

"This acquisition will extend our reach to lower-income customers and strengthen and diversify our store footprint," Bob Sasser,聽Dollar聽Tree's Chief Executive said in a statement.

Dollar聽stores have struggled in a weak U.S. economy and increased competition from large discount chains such as聽Wal-Mart聽Stores Inc, which are increasingly chasing penny-pinching consumers by offering more items priced at $1 or less.

Icahn,聽Family聽Dollar's largest shareholder with a 9.4 percent stake, wanted the company to sell itself to聽DollarGeneral Corp to help it cope with the competition.

Dollar聽Tree, which said on Monday its offer had been approved by聽Family聽Dollar's board, will have about 13,000 stores across the聽United States聽and聽Canada聽once the deal closes.

Dollar聽Tree said it secured a bridge financing from JP Morgan Chase Bank N.A. that, along with existing cash and bonds, would be used to finance the deal.

J.P. Morgan Securities LLC聽is financial adviser to聽Dollar聽Tree, and聽Morgan Stanley & Co. LLC聽is financial adviser to聽Family聽Dollar. (Reporting by Ramkumar Iyer and Devika Krishna Kumar in Bangalore; Editing by Savio D'Souza)"