Dollar General Raises Bid In The Battle For The Dollar Market
By Brianna Ahearn, contributing writer
In the midst of the battle of the discount stores, Dollar General has raised its bid for Family Dollar to $9.1 million this week. The Wall Street Journal also reports talk has turned to a hostile takeover if the board doesn't agree to the merger. Family Dollar had previously rejected an offer from Dollar General, because of the deal they previously agreed to with Dollar Tree. Analysts are predicting Family Dollar will accept the new bid from Dollar General, which works out to $80.00 per share. The bid also comes with the agreement to close a number of stores and new provisions to assure Family Dollar if anti-trust issues arise.
The New York Times reports Dollar General warned Family Dollar that if they didn't enter into talks, there's a possibility Dollar General will go directly to the shareholders. The Dollar General bid is significantly higher than the bid from Dollar Tree, leading Dollar General to believe shareholders would back the more lucrative bid.
Family Dollar's board had ruled out accepted the Dollar General bid, but have now issued a statement indicating that they were considering the offer, although a spokesperson qualified the statement by saying the company's board of directors has not changed its recommendation in support of the merger with Dollar Tree." Family Dollar's board still has concerns about whether the merger would get approval from federal regulators. To assuage these concerns, Dollar General's bid now includes a $500 million "reverse" breakup fee in the event regulators fail to approve the merger.
Dollar Tree's bid was designed to please the board of directors by keeping open the company's Charlotte-area headquarters. It also included a promise to keep the name “Family Dollar” on acquired stores and keep Family Dollar Chairman and CEO Howard Levine for a minimum of two years. Analysts agree Levine would be ousted if Dollar General's bid is accepted.
Dollar General may be a better overall fit for Family Dollar, since both retailers price competitively with WalMart. Dollar Tree's strategy is to price all items at $1.00. Experts believe Dollar Tree's bid is a risky proposition even if the retailer succeeds. Now in a bidding war, Dollar Tree would have to increase its offer significantly, which may not make financial sense given that Family Dollar is a poor performer and the deal would include maintaining Levine. Moreover, as WalMart strives to reverse declining store sales, the retail battle becomes more intense, which is not necessarily positive for Dollar Tree. Analysts point to the strong performance of WalMart's new Neighborhood Markets, which are smaller stores that are comparable in size to a Dollar Tree, as a potential threat on the horizon for Dollar Tree.