Dollar Tree Acquires Family Dollar Stores for $8.5 Billion
By Christine Kern, contributing writer
Merger will create discount chain larger than Walmart empire
Dollar Tree Inc. has agreed to buy Family Dollar Stores Inc. for about $8.5 billion, creating a discount chain with $18 billion in sales and more locations than Wal-Mart Stores Inc.
According to NASDAQ, the agreement, which provides Family Dollar with a roughly 23 percent premium over the company's closing stock price Friday, comes as activist investor Carl Icahn has been pushing for a sale of Family Dollar and threatening to replace the discount retailer's board. Mr. Icahn has amassed a nearly 9.4 percent stake in Family Dollar, according to a recent regulatory filing.
Dollar Tree Inc. is an operator of discount variety stores selling everything for $1 or less, and Family Dollar Stores Inc. is a national discount retailer offering name brands and quality, private brand merchandise.
Bloomberg reported that Dollar Tree will pay $74.50 a share in cash and stock, 23 percent above Family Dollar's closing price at the end of last week, according to a statement from the companies today. Including debt, the deal has a value of about $9.2 billion.
Two billionaire activist investors, Carl Icahn and Nelson Peltz, who had acquired major stakes in Family Dollar and pushed for a sale, were determined to make the acquisition. Peltz, head of Trian Fund Management LP, went so far as to make an unsolicited bid for Family Dollar in 2011 in an attempt to attract other suitors. That offer was turned down and no other bidders emerged at the time.
Family Dollar Chief Executive Officer Howard Levine had previously been reluctant to sell the company his father founded. The business struggled to keep up with its competitors, however, including Dollar Tree, Wal-Mart and current dollar-store market leader Dollar General Corp.
Family Dollar shares rose 22 percent to $73.95 as of 10:14 a.m. in New York, while Dollar Tree's stock gained 5 percent to $56.95. Under the agreement, Dollar Tree will pay $59.60 in cash and $14.90 in stock per share for its Matthews, North Carolina-based rival.
In teaming up, Dollar Tree and Family Dollar are creating a bigger rival to Dollar General, which has long been the industry leader. The merged companies would have about the same amount of revenue as that competitor -- Dollar General had sales of $17.5 billion last year -- and far more stores.
The new Dollar Tree (DG) would have more than 13,000 locations across the U.S. and Canada, with 145,000 employees. That compares with about 11,000 apiece for Dollar General and Wal-Mart. Wal-Mart, though, usually has much larger stores and generates more than 20 times as much revenue.
The companies expect the transaction to close by early 2015 and will contribute to Dollar Tree's earnings per share within the first year. The deal will save Dollar Tree about $300 million annually by the end of the third year, the Chesapeake, Virginia-based company said.
The combined business will continue to operate under the Dollar Tree, Deals, Dollar Tree Canada and Family Dollar brands, according to the statement. Levine also will remain with the company and report to Sasser.