NEW YORK (TheStreet) -- There is roughly a 50% chance that Dollar General (DG - Get Report) tries a competing bid for Family Dollar (FDO) after the company agreed to an $8.5 billion merger with Dollar Tree (DLTR) in late July, Bloomberg reported. If Dollar General does move forward on a flip of the coin bid for its primary competitor in discount retail, it will face three major hurdles.
Carl Icahn, once Family Dollar's largest shareholder and a major advocate of a Dollar General takeover, sold most of his shares in the company last week. Icahn pared his Family Dollar stake from nearly 10% to just 3.61% in the wake of Dollar Tree's offer. While Icahn couldn't immediately be reached for comment on Tuesday, he cast lukewarm support of the Dollar Tree offer on July 28. However, Icahn stated he was "hopeful" another bidder for Family Dollar would emerge.
Meanwhile, Family Dollar CEO Howard Levine and activist hedge fund Trian Management have agreed to vote their shares in favor of Dollar Tree's offer. Combined, Levine and Trian own 16% of Family Dollar's outstanding shares.
Finally, as part of their July 28 merger agreement, Family Dollar agreed to pay Dollar Tree $306 million were it to accept an outside bidder. Those three factors will make it much harder and more costly for Dollar General to launch a counterbid for Family Dollar.
Bloomberg also confirmed on Tuesday that Dollar General had been approached about a bid for Family Dollar but that it decided to pass on a deal. Only after Dollar Tree emerged as a bidder is the company weighing a counteroffer.
Family Dollar CEO Howard Levine, the son of company founder Leon Levine, launched a strategic review in the winter of 2013 and after considering a number of bidders and alternatives for the struggling retailer, he began negotiating a merger with Dollar Tree in March.
If Dollar General does move forward, it will have to pay an expensive breakup fee and also have a tougher hurdle to climb with shareholders. In that sense, the company's reticence to enter Family Dollar's sale process might be seen as a strategic misstep.
Family Dollar and Dollar General declined to comment.