Bloomberg News

Activist investor Starboard Value LP just acquired a stake in Dollar Tree Inc. (DLTR)  and is pushing the retailer to sell its Family Dollar business and make changes to its pricing model, the Wall Street Journal reported.

The New York hedge fund has a 1.7% stake worth about $370 million in Dollar Tree and is seeking to control the company's 12-person board, the Journal said, citing sources. Starboard nominated seven directors to Dollar Tree's board last week.

Dollar Tree caters to middle-class shoppers who enjoy hunting for bargains, only selling items for $1 in suburban areas, while Family Dollar sells groceries and other retail items for a variety of prices to low-income rural and urban shoppers.

Dollar Tree shares have fallen 15% behind competitor Dollar General Co.  (DG) . The two dollar-store chains began 2018 with shares hovering around  $110, but diverted after the second quarter of 2018. Shares of Dollar Tree fell throughout 2018 and closed Friday at $92.89 while Dollar General's shares fought through a volatile market to trade at $108.77.

In early trading Monday, Dollar Tree was up 3.4% to $96.07.

Dollar General's outperformance over Dollar Tree is owed to improved rural economies while suburban shoppers are returning to retail malls to buy more upscale items.

Dollar Tree's underperformance against peers has frustrated some shareholders and analysts. The company bought Family Dollar for $9 billion in 2015, but critics say the two chains were never a good match and integration of the purchase into Dollar Tree and turning it around has been too slow.

Starboard wants Dollar Tree to sell Family Dollar even if it incurs a loss, the Journal reported, citing sources. The hedge fund also wants Dollar Tree to sell items for more than $1, joining competitors in selling items for $1.50 or $2.

Dollar Tree said Monday it welcomes "constructive input from shareholders about ways to further create value for all Dollar Tree shareholders.

"While we appreciate Starboard's investment and will evaluate any suggestions they may have as we would with any investor, we note that Starboard's nominations for a majority of the board were made without seeking any engagement or making any communication to the company. We look forward to the opportunity to engage with Starboard regarding any suggestions they may have, and we will continue to stay close to our shareholders on matters of importance to them and keep taking actions to drive shareholder value, Dollar Tree said.

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