NEW YORK (TheStreet) -- Dollar General (DG) reportedly put its odds of making a counterbid for Family Dollar (FDO) at about 50% after the discount retailer announced a $8.5 billion merger with Dollar Tree (DLTR) in late July. Now, it appears Dollar General investors will come up a winner no matter how the company's M&A coin flip goes.
Dollar General said Monday it would pay $78.50 a share in cash for Family Dollar, in a deal valued at about $9.7 billion. The bid, while only marginally higher than Dollar Tree's offer, indicates there are many ways Dollar General shareholders will benefit from the Family Dollar sweepstakes. That's even the case if Dollar General doesn't eventually buy Family Dollar.
Analysts and hedge fund investors have long believed Dollar General was the best possible buyer of Family Dollar, citing significant cost synergies between the two companies in the event of a merger and a better management of what would be one of the nation's largest retailers. Dollar General on Monday surpassed even optimistic assessments of cost synergies, disclosing between $550 million and $600 million in forecast annual synergies within three years of an acquisition of Dollar General.
Given Dollar General's all-cash offer for Family Dollar, shareholders would stand to benefit entirely from achieving those synergies. Meanwhile, Dollar General's well-regarded CEO Rick Dreiling said on Monday he would stay on with the company through May 2016 if it did negotiate an acquisition of Family Dollar. Dreiling had announced his upcoming retirement earlier in 2014.