Dollar General starts tender offer to Family Dollar shareholders

Dollar General starts a tender offer to Family Dollar shareholders. The Tennessee-based variety store chain is offering $80 per share in cash, just above Family Dollar’s $78.70 Tuesday’s closing price. The offer expires on October 8th at 5pm.

Rick Dreiling, Chairman and CEO of Dollar General, said:

“Our offer provides Family Dollar shareholders with significantly greater value than the existing agreement with Dollar Tree, as well as immediate and certain liquidity for their shares. By taking this step, we are providing all Family Dollar shareholders a voice in this process, and we urge them to tender into our offer.”

“Additionally, we now can begin the antitrust review process and will have an opportunity to present our position directly to the FTC. As we previously have stated, we are confident in the results of our antitrust analysis, and we look forward to a constructive dialogue with the FTC.”

Dollar General says its all-cash $80 dollar offer is a much better deal than the $74.50 cash/stock offer announced by Dollar Tree in July.

Dollar General says its offer gives Family Dollar shareholders about $640 million more than the other offer “and represents a premium of 31.9 percent over the closing price of $60.66 for Family Dollar stock on the day prior to the Dollar Tree announcement.”

Last week, Family Dollar rejected a Dollar General $9.1 billion cash offer ($80 per share). It had also spurned an August acquisition bid.

Family Dollar says it prefers to merge with Dollar Tree, even though the deal means less money, because it believes a Dollar General transaction would be blocked by antitrust regulators.

A risky strategy

Dollar General hopes it can pull off this hostile takeover. It is a risky move.

It is offering to acquire a company without carrying out any due diligence, i.e. it won’t have access to confidential financial data or be able to ask questions to the management.

However, by commencing the cash tender offer, Dollar General can start antitrust talks with the Federal Trade Commission(FTC), where it can get an idea of what will need to be done to clinch the deal.

Dollar General said it would be willing to divest up to 1,500 stores in order to secure the merger.

Family Dollar boss defending his job?

Carl Icahn, a billionaire investor who disclosed earlier this year that he had acquired a 9.5% stake in Family Dollar, believes its chairman and CEO, Howard R. Levine, is against a deal with Dollar General because he is afraid of losing his job.

Ed Garden, who is on the Family Dollar board of Directors and is co-founder of and Chief Investment Officer at the hedge fund firm Trian Fund Management, backs the Family Dollar merger with Dollar Tree.

Mr. Garden said “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.”