A Dollar Tree merger deal with Family Dollar worth $8.5 billion has been agreed, the two companies announced today. In the cash and stock transaction Dollar Tree will pay $74.50 for each Family Dollar share, i.e. about 22.8% above its closing price on July 25th.
Family Dollar stockholders will receive $59.60 in cash plus $14.90 equivalent in Dollar Tree shares, and will own between 12.7% and 15.1% of the outstanding common stock of Dollar Tree.
Dollar Tree Inc., based in Chesapeake, Virginia, is a leading operator of discount variety stores selling everything up to $1 in value.
Family Dollar Stores Inc., headquartered in Matthews, North Carolina, is a leading national discount retailer.
While both companies may appear similar, because they both have the word “dollar”, they are quite different. Dollar Tree is your classic one-dollar store, while Family Dollar is a low-end general merchandise retailer, more similar to Dollar General.
New entity will be a Dollar General rival
The merged company will become a discount operator with more than $18 billion in annual sales and more locations than Wal-Mart. It will become a serious rival to Dollar General, the industry leader with sales of $17.5 billion in 2013.
The combined companies will have over 13,000 locations across North America, with 145,000 workers. Wal-Mart and Dollar General have about 11,000 locations each. However, Wal-Mart’s stores are much bigger.
The directors of both companies unanimously approved the takeover, which is expected to be completed by early 2015.
Icahn’s and Peltz’ ambitions fulfilled
The deal fulfils the goals of Carl Icahn and Nelson Peltz, two billionaire activist investors. They had both bought a stake in Family Dollar and have been pushing for a sale. In 2011, Mr. Peltz made an unsuccessful hostile bid for Family Dollar through Trian Fund Management LP.
Bob Sasser, Dollar Tree’s Chief Executive Officer, said:
“With the acquisition of Family Dollar Stores, Dollar Tree will become a leading discount retailer in North America, with over 13,000 stores in 48 states and five Canadian Provinces, sales of over $18 billion, and more than 145,000 associates on our team.”
The combined entity will carry on operating under the Dollar Tree, Deals, Dollar Tree Canada, and Family Dollar brands.
Mr. Sasser added “This acquisition will extend our reach to lower-income customers and strengthen and diversify our store footprint. We plan to leverage best practices across both organizations to deliver significant synergies, while we accelerate and augment Family Dollar’s recently introduced strategic initiatives. Combined, our growth potential is enhanced with improved opportunities to increase the productivity of the stores and to open more stores across multiple banners.”
Dollar Tree believes that the two companies together will be able to extend their reach to lower-income customers.
Family Dollar under pressure
Howard Levine, Family Dollar’s Chairman and CEO, and son of the company’s founder, had not been keen on selling the company.
However, the business had been struggling amid fierce competition from other discount chains, including Dollar General Corp., Wal-Mart and Dollar Tree, making this deal virtually impossible to walk away from.
Bloomberg Businessweek quoted Joseph Feldman, an analyst working at Telsey Advisory Group, New York, who said “It’s a more natural evolution than anything else. Family Dollar has been under some pressure for some time.”
Regarding the proposed merger, Mr. Levine commented:
“For more than 54 years, Family Dollar has provided value and convenience to customers. Dollar Tree also has a rich history of providing great value to customers, and together, as one company, we can provide more customers with even greater value and convenience.”
“We are pleased to conclude this process with the announcement of this compelling transaction with Dollar Tree, which our Board has unanimously determined to be in the best interests of our shareholders. I am excited about our future with Dollar Tree, and I look forward to working with the Dollar Tree team to complete the combination as quickly as possible to realize the compelling benefits for all our stakeholders.”