Family Dollar Holders Okay Merger Offer

MATTHEWS, NC—Shareholders in Family Dollar Stores Inc. voted Thursday to accept the $8.8-billion merger offer from Dollar Tree Inc., nixing a higher offer from Dollar General Corp., the nation's largest operator in the discount store space. Assuming the combination clears regulatory hurdles, the combined company will operate more than 13,000 stores in 48 states and five Canadian provinces with annual sales exceeding $18 billion.

“This merger enhances our geographic footprint and diversifies our business model,” says Bob Sasser, CEO of Chesapeake, VA-based DLTR. “We intend to operate and grow both banners.”

Sasser explains the difference in the two chains' business model. “At Dollar Tree stores, everything is $1, while Family Dollar stores will continue to serve low- to middle-income customers with name brand consumables, home basics, variety and seasonal products at discount store prices,” he says. “By utilizing the $1 fixed-price point in Dollar Tree and multi-price points at Family Dollar, we will deliver even greater value and choice to a broader range of consumers.”

FDO's management had maintained that DLTR's merger offer—although valued at $2.95 per share less than DG's $80-per-share bid—was more likely to satisfy regulators. DG and FDO are more direct competitors, and the combined company may have had to divest more locations. While DG said it was willing to sell as many as 1,500 stores to win Federal Trade Commission approval of the deal, DLTR said the figure was too low, while its own merger plan would require it to divest fewer than 300 locations.

Rick Dreiling, DG's CEO, calls FDO's rejection of his company's bid “a loss not only for Family Dollar shareholders, but also for consumers across the country who will not have the opportunity to benefit from the cost savings and efficiencies that we believe would have been created by a merger between Dollar General and Family Dollar. As we have said throughout this process, the scale of this combination would have provided better value and greater selection to customers of both Dollar General and Family Dollar. Nonetheless, he says that FDO's “lack of engagement,” combined with “a contracted transaction timeline,” prevented DG from prevailing.

By month's end, DLTR expects to reach a preliminary agreement with FTC staff on the list of stores to be divested. The company then plans to finalize divestiture agreements with the selected buyer or buyers, to address any concerns of the investigating state attorneys general, and to execute a consent order with the FTC's Bureau of Competition.

Dreiling, who will remain chairman and CEO at Goodlettsville, TN-based DG through Jan. 29, 2016, says his company remains focused on its core business. “We are confident that Dollar General is well positioned for sustainable growth and shareholder value creation going forward,' he says. “As always, we will continue to look for ways to provide our customers with the everyday low prices that they count on from Dollar General.”