By Michael Calia
Dollar stores apparently don't come cheap.
Dollar General Corp. on Monday offered about $9 billion in cash
for rival Family Dollar Stores Inc., looking to elbow out Dollar
Tree Inc., which agreed to acquire Family Dollar three weeks
ago.
Dollar General, the biggest dollar store chain in the U.S., has
long been considered a logical buyer of Family Dollar. Chief
Executive Rick Dreiling said he had shown interest in a deal
multiple times over the past few years and was "very surprised" at
the agreement reached between his two rivals last month.
The acquisition would allow Dollar General to broaden its
footprint in rural markets while giving it access to Family
Dollar's robust presence in urban areas at a time when retailers
are locked in a fierce battle to attract consumers.
In midday trading Monday, shares of Family Dollar were up 5% at
$79.85, topping Dollar General's offer of $78.50 a share.
Family Dollar confirmed receipt of the bid from Dollar General
and said its board will consider the proposal. A representative
from Dollar Tree declined to comment.
The combination of Dollar General and Family Dollar, the
second-biggest deep discounter, would have about 20,000 stores in
46 states, with sales of more than $28 billion, Dollar General
said.
Last month's offer from Dollar Tree, the smallest of the three
retailers, is valued at about $8.5 billion, or $74.50 a share, in
cash and stock.
Dollar General was thought to be deterred by the involvement of
activist investor Carl Icahn, according to a person familiar with
the matter. He had pressured Family Dollar to put itself up for
sale and identified Dollar General as an appropriate suitor.
As he cut his investment in Family Dollar late last month, Mr.
Icahn said he was pleased with Family Dollar's deal with Dollar
Tree and said he remained hopeful that another potential suitor
would emerge.
Dollar General's Mr. Dreiling said Monday that he would postpone
his retirement-- originally slated to happen by the end of May of
next year--to remain as the head of the combined company through
May 2016 and added that he may not have announced his retirement if
he had known Family Dollar was in play.
Mr. Dreiling has been credited with expanding Dollar General's
product offerings, adding more stores and boosting sales during a
difficult time for the U.S. economy. His retirement was thought to
be a blow for Dollar General's merger prospects.
Todd Vasos, Dollar General's chief operating officer, would
oversee a potential integration of the companies, Mr. Dreiling
said.
The dollar store chains thrived during the recession as the
number of working Americans living in poverty increased by nearly
40%, according to the U.S. Bureau of Labor Statistics.
The stores appealed to cash-strapped shoppers with
bargain-basement prices and locations that were closer to their
homes than many Wal-Mart supercenters.
Despite general positive trends for dollar stores, Family Dollar
has struggled as it raised some prices in a bid to offset some
deeper discounts. At the beginning of the year, the company backed
off that strategy and cut prices on about 1,000 items while also
announcing plans to close 370 locations this year and slow the pace
of new openings.
Mr. Dreiling chalked up Family Dollar's recent struggles to a
variety of issues. "It's a combination of a lot of little things
that all add up at the end of the day to one big thing," he said
Monday, citing product mix, pricing and store layout. He said that
Family Dollar stores would look like Dollar General stores on the
inside after a potential integration, although he said it was
unclear whether there would be changes to the stores' banners.
Dollar General said it would be prepared to divest itself of 700
stores to avoid antitrust issues. It also said that Goldman Sachs
and Citigroup Global Markets Inc. have agreed to provide financing
for a deal, including the $305 million termination fee Dollar Tree
would get if Family Dollar ends their deal.
Write to Michael Calia at michael.calia@wsj.com
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