By  on July 29, 2014

Dollar Tree Inc. is set to acquire its competitor Family Dollar Stores Inc. in a transaction valued at $8.5 billion. The deal is a cash-and-stock transaction valued at $74.50 a share. Family Dollar shareholders will receive $59.60 in cash and $14.90 in Dollar Tree stock for each share that they own. The deal, which is expected to close early next year, valued Family Dollar at an enterprise value of $9.2 billion. Dollar Tree will finance the acquisition through cash on hand, bank debt and bonds. The respective boards of both chains have already approved the merger. The transaction is still subject to certain customary closing conditions, such as the approval of Family Dollar stockholders. Certain activist investors, such as Nelson Peltz’s Trian Fund Management and Carl Icahn’s Icahn Associates, have been pushing for a sale of Family Dollar. Peltz has already said he would vote his shares in favor of the merger. Icahn said that while he hoped another buyer might surface — and pay a higher price — the transaction “is a big win for all shareholders of Family Dollar and yet another validation of the activist investment philosophy in general.” Anyone who might consider making a higher offer also would have to factor in a break-up fee of more than $300 million that Family Dollar is obliged to pay Dollar Tree should the current agreement fail to close due to a better offer. Synergies from the combined merger, such as in sourcing and logistics, are expected to save at least $300 million a year. Dollar Tree said it will continue to operate the Family Dollar nameplate in addition to those of its own: Dollar Tree, Deals and Dollar Tree Canada. Each chain is a national discount variety store selling merchandise for $1 or less. Bob Sasser, the chief executive officer of Dollar Tree, called the merger a “transformational opportunity.” He said the acquisition of Family Dollar will give Dollar Tree over 13,000 stores in 48 states and five Canadian provinces, with sales of $18 billion. According to Sasser, “The acquisition of Family Dollar is consistent with our vision to be the leader in value retailing.” Sasser said that Howard Levine, the ceo of Family Dollar, will remain with the company and become a Dollar Tree board member upon the closing of the deal. Levine said, “Today’s announcement represents the successful culmination of a comprehensive strategic review process that our board of directors, working with its financial and legal advisors, began this past winter.” According to the retail chains, benefits connected with the merger include: creation of a leading discount retailer in North America; complementary business model across fixed- and multi-price point and a broader target range of customers and geographies, given Dollar Tree’s Middle America customers in suburban areas and Family Dollar’s low- and lower-middle income households in urban and rural locations. Shares of Dollar Tree rose 1.2 percent to $54.87 in Nasdaq trading, while shares of Family Dollar jumped 24.9 percent to $75.74 in Big Board trading.

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