Dollar General Corp. has entered the bidding for Family Dollar Stores Inc. with a deal worth $9.7 billion.
The offer is an all-cash proposal at $78.50 a share. Dollar General sent a letter to Family Dollar’s board this morning and still needs to conduct due diligence before submitting a definitive merger agreement. And while Dollar General will need to divest up to 700 stores to garner the requisite antitrust approval, the retailer said that’s a comparable percentage to the 500 stores Dollar Tree agreed to divest to complete its transaction with Family Dollar.
The offer is better than the one Family Dollar received from Dollar Tree Inc. 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 board 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.
Dollar General said the two companies have complementary business models and a merged company would create operating synergies of “$500 million to $600 million on an annual run-rate three years post-closing.” A merged entity would create a retailer with sales of more than $28 billion, 20,000 stores in 46 states and more than 160,000 employees.
Rick Dreiling, chairman and chief executive officer of Dollar General, previously said he would retire, but now has agreed to stay on in those positions until May 2016 — provided a merger agreement is signed — to oversee the integration of the two firms. If a merger agreement is not inked, Dreiling is scheduled to retire May 2015.
In a conference call to Wall Street analysts, Dreiling said, “Based on our strong track record of success and improving our own profitability since 2008, we believe we can manage the Family Dollar stores more efficiently and effectively.”
The ceo added that the proposed transaction for Dollar General “will be accretive to earnings,” excluding implementation and transaction costs.
And while the transaction is an all-cash deal, Dreiling also emphasized that the proposal is not subject to any financing condition given that Goldman Sachs and Citicorp have already provided commitments that include the $305 million termination fee to Dollar Tree.
The financing structure involves a combination of revolver, term loan and notes, according to David M. Tehle, chief financial officer.
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