News Feature | August 21, 2014

Dollar General Makes Bid To Acquire Family Dollar

By Brianna Ahearn, contributing writer

Dollar General Family Dollar

Dollar Tree purchased Family Dollar this month for a reported $8.5 billion and created a merger than resulted in more than 13,000 stores. Now a competitor is making moves to acquire Family Dollar. Forbes reports Dollar General made a bid of $9.7 billion. The bid means Dollar General would pay $78.50 per share of the retailer and it is $4.00 higher than the Dollar Tree offer. Retail analysts have written about “dollar” merchandisers making bids for the discount retail action, especially up against competitor Walmart. Dollar General taking on Family Dollar would mean good news for the chain, which makes the most annually of all three dollar stores, reports USA Today.

Dollar General currently has 11,000 stores throughout the United States, and if the chain purchased Family Dollar, the company would own nearly 20,000 locations. It's understandable that this move poses a credible threat to Walmart's hold on the discount-shopping consumer, and Dollar General believes the offer is fair. “Our proposal is financially superior to the current transaction agreement with Dollar Tree,” says Rick Dreiling, Chief Executive Officer of Dollar General.

Family Dollar put out a statement on August 18 for its shareholders, stating the planned merger with Dollar Tree is still underway. “Family Dollar remains subject to the merger agreement with Dollar Tree, and the Company's Board of Directors has not changed its recommendation in support of the merger with Dollar Tree. Family Dollar will have no further comment on Dollar General’s proposal until the Board has completed its review.” The sales projected for the Family Dollar/Dollar Tree merger would reach $18 billion according to a July press release from Dollar Tree, with stores in 48 states and five Canadian provinces.

On August 20, Dollar General released a statement about a letter sent to Family Dollar's Board of Directors. The letter was printed in its entirety on Dollar General's website and listed the timeline of events that led up to the bid, including Family Dollar's failure to follow up with Dollar General about the proposed acquisition. “This lack of engagement is puzzling. Regrettably, as a result, we are now forced to factor a $305 million break-up fee into our offer –consideration that could have been better used to maximize value for the Family Dollar shareholders,” the letter reads.

Although retailers like Target and Meijer ostensibly compete with Walmart, the Dollar stores are the most significant threat to Walmart's dominance. During the great recession, the buying power of the average American consumer decreased, fueling the growth of the Dollar stores. Despite economic recovery, wages of American workers remain stagnant. The Dollar stores, like Walmart, substantially rely on the lower middle class and working poor. This  economic situation was recently acknowledged by Walmart in its 2013 economic report. Andy Murray, Walmart senior vice president, creative, explained that a decade ago about 50% of Walmart shoppers cited Walmart's low prices as the primary reason for choosing the retailer, but in 2014 that number has increased to 75%. With more people prizing low prices as the most important factor in shopping for household items, some retail experts have wondered why Walmart failed to make a bid for its closest true competitors.

The competing bids by Dollar General and Dollar Tree have created a fluid situation that will ultimately be decided by the shareholders.