Citing antitrust concerns, the board of Family Dollar Stores (FDO) said today that it has rejected the buyout offer from competitor Dollar General (DG), and reiterated its support for the prior merger agreement it signed off on with Dollar Tree (DLTR).
Family Dollar's rejection of the offer from Dollar General, which was a better offer than the prior deal it agreed to with Dollar Tree, is the latest chapter in the war for control of the so-called "dollar store" space. These small box stores, which sell low-priced items and cater to a middle class still hurting from the fallout from the Great Recession and 2008 financial crisis, are gaining clout and looking for additional size and scale to fend off competition from bigger rivals like Wal-Mart, which is making a push into the low-price, smaller-store format.
The Dollar General bid for Family Dollar was $78.50 per share in cash, which topped the $74.50 cash and stock deal offered by Dollar Tree. In announcing its bid for Family Dollar, Dollar General had said it was willing to shutter 700 stores in order to avoid any type of antitrust issues and clear the path for approval with regulators.
But Family Dollar specified anti-trust issues as the key reason in its decision to reject Dollar General's better offer.
In a statement early this morning, Family Dollar's board stressed that in its due diligence in evaluating the merits of Dollar General's more generous offer, it wanted to ensure that such a deal "is reasonably likely to be completed on the terms proposed."
But Family Dollar's board, after consulting with its team of financial and legal advisors that conducted an extensive antitrust analysis, determined that the Dollar General "proposal fails to satisfy this requirement."
In recent years, retailers like Dollar General and Family Dollar, which sell products that sell for $10 or less, and Dollar Tree, which peddles products that sell for just $1, have been taking business away from retail giants like Wal-Mart. Analysts say a merger of two of the three leading "dollar store" retailers will create a juggernaut better able to fend off rivals like Wal-Mart.
In announcing the rejection of Dollar General's bid, Family Dollar Chairman and CEO Howard R. Levine said: "Our Board of Directors, with the assistance of outside advisors and consultants, has been carefully analyzing the antitrust issues in a potential combination with Dollar General since the beginning of this year, as detailed in the our preliminary proxy statement that was filed by Dollar Tree with the SEC on August 11. Our Board reviewed, with our advisors, all aspects of Dollar General's proposal and unanimously concluded that it is not reasonably likely to be completed on the terms proposed. Accordingly, our Board rejects Dollar General's proposal and reaffirms its support for the pending merger with Dollar Tree."
However, Dollar General has gone on record stating that antitrust-related issues are not a major risk to the deal between it and Family Dollar getting done.
Still, Ed Garden, a co-founder and partner at Trian Fund Management, a large Family Dollar shareholder, was quoted in Family Dollar's statement nixing the Dollar General offer, as saying the antitrust concerns were a legitimate concern. "The CEO of Dollar General said he believes that antitrust is not a risk but did not put forth a proposal that eliminates regulatory risk for Family Dollar shareholders," Garden wrote. "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."