Updated from 7:29 a.m. EDT with comments from Family Dollar, Dollar General and analysts.
NEW YORK (TheStreet) -- Dollar General (DG - Get Report) raised the stakes in its competing bid for Family Dollar (FDO - Get Report) , offering $80 a share in cash and major antitrust concessions that may force the two discount retailers to the negotiating table after a one-month standoff.
Dollar General said Tuesday it would increase its takeover bid for Family Dollar, while also offering two major concessions: a $500 million reverse termination fee in the event antitrust regulators nix the deal, and a promise to divest up to 1,500 stores if the Federal Trade Commission orders the company to do so.
Watch the video below to find out why TheStreet's Jim Cramer says he'd rather own shares of Dollar Tree than Family Dollar:
WATCH: More market update videos on TheStreet TV Antitrust or Operational Improvement? While Family Dollar and Dollar General are direct price competitors and do operate in many of the same geographies, S&P Capital IQ equity analyst Efraim Levy said in a Thursday telephone interview he believes a merger between the two companies would be about increasing operational performance, and not removing a competitor from the market. Dollar General's Dreiling said on a conference call Thursday with analysts he believes 20% of synergy estimates would come from better category management, with another 40% coming from procurement and merchandising synergies and a remaining 40% coming from reductions to the combined company's sales, general and administrative expense. In recent quarters, Family Dollar has earned nearly $55 in sales per square foot, over 15% more than what Family Dollar earns per square foot across its more than 8,000 stores. Some analysts believe that gap in performance is indicative of structural issues like Family Dollar's high exposure to urban markets. However, implicit in Dollar General's synergy guidance is the assumption it can operate legacy Family Dollar stores more effectively, potentially closing the gap between both companies. Dollar General said in a letter addressed to Family Dollar it believes WalMart (WMT) is the company's primary competitor, potentially downplaying antitrust concerns. Dollar General also noted about 75% of the its stock keeping units (SKUs) are priced nationally and not by geographic zones. Furthermore, as a "fill-in" destination for food, beverage and household product consumers, Dollar General said it competes against mass retailers, club stores, drugstores and groceries, and independent retailers. "Each of the above retail outlets sells the sort of items that Dollar General sells, and there is nothing unique about these products," Dollar General said in its letter. Credit Suisse analyst Edward Kelly said in a note Tuesday that he agreed with Dollar General's assessment of the market and believes "there is a strong likelihood" the company wins in its bid for Family Dollar. [A]ntitrust should not derail this transaction," Kelly wrote, while noting his belief that a combination of Dollar General and Family Dollar makes more strategic sense than Dollar Tree's proposed offer. Ultimately, antitrust may prove a weak defense for Family Dollar as it continues to recommend a merger with Dollar Tree to its shareholders. Watch for the response of key shareholders such as Trian Management as to whether Dollar General’s latest bid is a credible effort. Read More: Family Dollar's Lost Way Leads to Peltz and Icahn -- Written by Antoine Gara in New York Follow @AntoineGara
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