Skip to main content
Advertising

Originally published August 18, 2014 at 6:25 AM | Page modified August 19, 2014 at 6:21 AM

  • Share:
           
  • Comments
  • Print

Dollar General enters bidding for Family Dollar

Dollar General isn't about to be left out in the cold. The discounter is starting a bidding war for Family Dollar with an approximately $8.95 billion offer as it attempts to trump a Dollar Tree bid.


AP Business Writers

advertising

NEW YORK —

Dollar General isn't about to be left out in the cold. The discounter is starting a bidding war for Family Dollar with an approximately $8.95 billion offer as it attempts to trump a Dollar Tree bid.

For Dollar General, the decision to enter the fray was clear because Family Dollar had been on its radar for a while. Dollar General Chairman and CEO Rick Dreiling said during a conference call Monday that the company had expressed interest in combining with Family Dollar multiple times over the last few years.

While Dreiling didn't disclose if there'd been any sticking points in working out an agreement in the past, he said Dollar General was very surprised when Family Dollar announced its deal with Dollar Tree. Despite the shock, Dollar General remains undeterred in trying to work out a transaction.

"It's all water under the bridge. We're ready to move forward," Dreiling said.

While Dreiling was planning to retire from the CEO post in May 2015, he's agreed to postpone his retirement until May 2016 in order to help with the integration of the two companies.

One reason Dollar General is angling for Family Dollar is its customer base. Dreiling said that Family Dollar is strong in metropolitan areas, while Dollar General's strength lies in rural markets.

"Maybe we'll be able to learn something from each other," he said.

The two businesses also have similar pricing strategies, offering shoppers most products at $10 or less. At Dollar Tree, everything in its stores costs just a buck.

While Dollar General and Family Dollar have several complimentary aspects of their businesses, a combination would also help eliminate some competition in the sector.

Dreiling said that even though retailers like Wal-Mart Stores Inc. have been opening smaller-format stores to try to lure lower-income customers, Dollar General's business has actually been hurt worse when a Family Dollar store opens near one of its locations.

But that doesn't mean that Wal-Mart and other retailers like Kroger Co. aren't a competitive threat still. By bringing Family Dollar into the fold, Dollar General can not only eliminate the rivalry -- it can also bolster its muscle to help ward offer bigger players.

A Dollar General and Family Dollar combination would create a chain with almost 20,000 stores in 46 states and sales of more than $28 billion.

Family Dollar has also come into play because of its business struggles. The Charlotte, North Carolina company has been shuttering stores and cutting prices in hopes of boosting its financial performance. In June investor Carl Icahn urged the company to put itself up for sale.

Dollar General Corp. said it would pay $78.50 per share in cash. That's 3 percent higher than Family Dollar Stores Inc.'s Friday closing price of $76.06. Dollar General put the deal's value at $9.7 billion.

Last month Dollar Tree Inc. made an $8.5 billion bid for Family Dollar. It offered to pay $59.60 in cash and the equivalent of $14.90 in shares of Dollar Tree for each share held. The companies valued the transaction at $74.50 per share at the time. Including debt and other costs, the companies estimated the transaction to be worth approximately $9.2 billion.

It remains to be seen if Dollar Tree will boost its offer for Family Dollar, and Wal-Mart recently said it's not interested in acquiring a dollar chain. Dreiling would not comment on whether Dollar General would be willing to increase its bid.

"We have a great deal on the table. Let's let it all play out," he said.

Representatives for Dollar Tree did not immediately respond to requests for comment. Family Dollar said its board would review the proposal.

Dollar stores really came to the forefront of consumers' minds during the recession, as people across income groups searched for ways to save money. To attract a broader array of customers, they also expanded their offerings to include more groceries and brand-name products, instead of just the party favors and other knickknacks people often associated with them.

More recently, however, sales at dollar stores have been suffering because the lower-income customers who shop there are facing persistent job instability and slow wage growth in the aftermath of the recession. And higher-income customers began to shift away from dollar stores a bit once the economy began to strengthen.

If Dollar General winds up reaching an agreement with Family Dollar, the Goodlettsville, Tennessee company anticipates annual savings of $550 million to $600 million three years after closing. Integration costs are projected to total between $300 million and $400 million.

Dollar General believes it can quickly address any antitrust issues and is willing to divest up to 700 of its stores in order to get the necessary approvals for the transaction. Dollar Tree had agreed to divest 500 of its U.S. stores for its proposed deal.

Dreiling has also agreed to remain as a director -- and would be willing to serve as chairman -- if asked by the board and elected by shareholders. Todd Vasos, Dollar General's chief operating officer, will be responsible for handling the day-to-day integration of the two companies.

Dollar General said that Goldman Sachs and Citigroup Global Markets Inc. have agreed to provide committed financing, which would include the $305 million termination fee due to Dollar Tree if Family Dollar chooses a deal with Dollar General instead.

Dollar General's board unanimously approved the Family Dollar deal. The company anticipates completing the transaction on a similar time frame as the one Dollar Tree announced, which was by early 2015.

Shares of Dollar General stock climbed $6.41, or 11 percent, to $63.87 in afternoon trading.

Family Dollar's stock gained $3.83, or 5 percent, to $79.89. Shares of Dollar Tree, which is based in Chesapeake, Virginia, fell $1.12, or 2 percent, to $54.48.

_____

Anne D'Innocenzio contributed to this story from New York.



Want unlimited access to seattletimes.com? Subscribe now!

Also in Business & Technology

News where, when and how you want it

Email Icon

Want free career advice? And an iPad Mini?

Want free career advice? And an iPad Mini?

Tell us about your goals and challenges and be considered for a future NWjobs career-makeover story, as well as a chance to win an iPad Mini!

Advertising

Advertising


Advertising
The Seattle Times

The door is closed, but it's not locked.

Take a minute to subscribe and continue to enjoy The Seattle Times for as little as 99 cents a week.

Subscription options ►

Already a subscriber?

We've got good news for you. Unlimited seattletimes.com content access is included with most subscriptions.

Subscriber login ►
The Seattle Times

To keep reading, you need a subscription upgrade.

We hope you have enjoyed your complimentary access. For unlimited seattletimes.com access, please upgrade your digital subscription.

Call customer service at 1.800.542.0820 for assistance with your upgrade or questions about your subscriber status.

The Seattle Times

To keep reading, you need a subscription.

We hope you have enjoyed your complimentary access. Subscribe now for unlimited access!

Subscription options ►

Already a subscriber?

We've got good news for you. Unlimited seattletimes.com content access is included with most subscriptions.

Activate Subscriber Account ►