By  on August 22, 2014

As the dollar stores jockey for their respective negotiating positions in the battle for Family Dollar Stores Inc., the behind-the-scenes decision making over which offer is superior is likely to rest in the hands of activist investor Trian Fund Management.

Nelson Peltz’s Trian holds about a 7.3 percent stake in Family Dollar. On Thursday, Family Dollar and Trian rejected Dollar General Corp.’s bid for the company, insisting it would stick with the initial offer made by Dollar Tree Inc.

Dollar General said it would continue to pursue Family Dollar.

Ed Garden, cofounder and partner at Trian, is one of four independent directors who is reviewing the bids.

Activist investors have been playing key investment roles on the retail and apparel front. On the mergers and acquisitions front, Eminence Capital last year began agitating for a merger between men’s retail chains The Men’s Wearhouse Inc. and Jos. A. Bank Clothiers Inc. Although Jos. A. Bank fired the first salvo with its $2.4 billion offer for its larger rival in October, it was Men’s Wearhouse that ultimately acquired Jos. A. Bank for $1.8 billion earlier this year.

In other moves, The Clinton Group successfully launched a proxy fight at ValueVision Media Inc., which operates the ShopHQ site, that resulted in a reconstituted board and a new chief executive officer. And Engaged Capital was able to influence Abercrombie & Fitch Co. to improve its corporate governance by bringing in Arthur Martinez earlier this year as non-executive chairman, with Michael Jeffries retaining his ceo role.

Trian’s Garden said Thursday, “Consistent with its fiduciary duties, the company’s board has sought to maximize shareholder value while considering the certainty of closing a transaction.…Given the significant antitrust issues involved with Dollar General’s proposal, we will not jeopardize the Dollar Tree deal for a transaction with Dollar General that has a high likelihood of not closing due to antitrust considerations. We remain fully committed to the Dollar Tree transaction.”

Garden said that while the ceo of Dollar General, Rick Dreiling, said he didn’t believe there was an antitrust problem, he also didn’t put forth a proposal that would eliminate that risk.

Dollar General entered the bidding for Family Dollar on Monday with an all-cash proposal of $78.50 a share and a transaction value of $9.7 billion. As part of the proposal, Dollar General said it will divest up to 700 stores to garner the requisite antitrust approval, a number it said was a comparable percentage to the 500 stores Dollar Tree had agreed to divest to complete its transaction with Family Dollar.

Numerically, the offer is better than the one Family Dollar received from Dollar Tree last month at $74.50 a share in a cash-and-stock transaction — $59.60 in cash and $14.90 in Dollar Tree stock for each share of Family Dollar stock owned — valued at $9.2 billion. The boards of Dollar Tree and Family Dollar have already approved the merger, although it is still subject to certain customary closing conditions, such as the approval of Family Dollar stockholders.

Money doesn’t seem to be the issue in this battle.

Garden is stating that Dollar General isn’t putting forth a proposal that would eliminate the antitrust risk, clearly placing the onus on Dollar General to improve on the terms of its offer — namely, a reevaluation of the store count and promise to divest even more stores.

Whether that updated bid comes through remains to be seen, but already the battle turned ugly Wednesday night when Dollar General disclosed that Dreiling sent a letter to Family Dollar’s board stating that its chairman and ceo Howard R. Levine, in preliminary discussions, had expressed an interest in becoming the ceo of a combined Dollar General-Family Dollar entity.

More pointedly, the letter said: “We cannot help but question whether Dollar General’s failure to embrace such requests by Mr. Levine weighed into Family Dollar’s decision to pursue an agreement with Dollar Tree.”

Levine said Thursday morning that the letter “contained blatant mischaracterizations.”

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