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Dollar General’s Family Dollar Bid Fails to Impress

Family Dollar's Sale Process 

Family Dollar, at the urging of activist investors like Trian Management, Paulson & Co. and Carl Icahn, ran a half-year sale process that began in February and began to take shape in March.

Trian executive Ed Garden, a Family Dollar board member since late 2011, was given a role on a committee tasked with running the company's sale prospects. At various stages in Family Dollar's strategic review, filings indicate that Levine approached Dollar General about a bid.

An August filing with the Securities and Exchange Commission shows that informal talks between Family Dollar and Dollar General initiated in the fall of 2013 led nowhere. After Family Dollar began negotiating a merger with Dollar Tree in March and April, and billionaire activist investor Carl Icahn disclosed a near 10% stake in the company and called for its sale in June, Dollar General remained lukewarm about a deal.

On June 19, the company formally declined to begin M&A negotiations with Family Dollar. Just over a month later, Dollar Tree surprised Wall Street by announcing its cash and stock deal for Family Dollar, which stipulated that the Family Dollar brand would be left intact and CEO Levine would take an executive role and board seat within the combined company.

Ultimately, Trian Management decided to back Family Dollar's merger with Dollar Tree. Both Trian Management and Family Dollar CEO Howard Levine agreed to vote their shares in favor of the transaction, representing about 16% of the company's outstanding shares.

Nevertheless, analysts who had forecast about $500 million in cost savings were Dollar General and Family Dollar to merge continued to argue that the a deal between the two companies was possible. Carl Icahn said on July 28 he was supportive of Family Dollar's deal with Dollar Tree, but also "hopeful" a competing bid would emerge. By August, Icahn pared his Family Dollar stake from nearly 10% of the company's outstanding shares to just 3.61%.

Despite being repeatedly approached by Family Dollar about a merger, Dollar General CEO Rick Dreiling said on Monday "there was no one more surprised than us" when Dollar Tree announced its $8.5 billion cash and stock deal on July 28. "If I thought this asset was in play, I probably wouldn't have announced my retirement," he added.

While Family Dollar and Dollar Tree did sign confidentiality agreements in their deal in March, analysts had publicly said they believed Dollar General was aware of the brewing deal between the two companies.

Perhaps, Dreiling isn't as surprised as he may state. Family Dollar, Dollar General and Dollar Tree declined to comment beyond their public statements.

Dollar General shares surged over 10% in Monday afternoon trading, while Family Dollar shares rose to $79.89, above Dollar General's cash offer.

Bottom Line: Family Dollar's sale process isn't over, raising new questions about the motives of all parties involved.

-- Written by Antoine Gara in New York

Follow @AntoineGara


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