Family Dollar rejects Dollar General despite an improved takeover offer of $9.1 billion, citing antitrust concerns. Dollar General increased its bid to $80 per share in cash from $78.50. Family Dollar says it is sticking to the $74.50 deal with Dollar Tree.
The rejection raises the prospect of America’s number one deep discount chain going hostile with its offer. Dollar General said it would take its offer directly to Family Dollar shareholders if it were turned down again.
Dollar General wrote today that it “remains committed to acquiring Family Dollar and is currently evaluating its next steps.”
Family Dollar had spurned Dollar General in August.
Dollar General said if it had to it would sell 1,500 stores to improve the chances of regulatory approval, and also pay $500 million to Family Dollar if the merger application fell through.
In a press release today, Family Dollar says its Board of Directors unanimously voted to reject the revised offer.
Howard R. Levine , Chairman and CEO of Family Dollar, said:
“Our Board of Directors, with the assistance of outside advisors and consultants, reviewed all aspects of Dollar General’s revised proposal and unanimously concluded that it is not reasonably likely to be completed on the terms proposed.”
“There is a very real and material risk that the transaction proposed by Dollar General would fail to close, after a lengthy and disruptive review process. Accordingly, our Board has rejected Dollar General’s revised proposal and reaffirmed its support of the transaction with Dollar Tree, which delivers attractive value in the form of immediate upfront cash and upside participation in a combined Dollar Tree-Family Dollar entity, as well as closing certainty.”
Dollar General and Family Dollar sell items priced at $10 or less, while Dollar Tree’s products average at about $1.
Dollar Tree determined
Dollar Tree has spent this summer trying to disrupt the Dollar Tree – Family Dollar merger deal.
Billionaire investor Carl Icahn, who revealed earlier this year he had bought a 9.4% stake in Family Dollar, suggested Mr. Levine might be trying to save his own job. If Dollar General manages to acquire Family Dollar, it is doubtful he would be able to retain his role.
However, the decision to turn down Dollar General has the backing of Ed Garden, a Family Dollar director and co-founder and Chief Investment Officer at Trian Fund Management, a hedge fund.
Mr. Garden said today:
“We are focused on delivering to Family Dollar shareholders the highest value with certainty, and the Dollar Tree transaction does just that. Dollar Tree has taken the antitrust risk off the table by committing to divest as many stores as necessary to obtain antitrust clearance. We remain fully committed to the Dollar Tree transaction.”
Mr. Garden added that Dollar General’s improved offer does not eliminate regulatory risk for the shareholders of Family dollar.
While Dollar General keeps saying that antitrust is not a risk, Mr. Garden points out that their proposals require Family Dollar shareholders to bear the ultimate risk. “Receiving a reverse breakup fee with an after-tax value of less than $3 a share does virtually nothing to compensate the Family Dollar shareholders for assuming that risk,” he said.