NEW YORK (The Deal) -- Dollar General (DG) has trumped Dollar Tree (DLTR) 's bid to acquire Family Dollar Stores (FDO) by $4 per share on Monday, offering $78.50 per share in cash, giving the target a market capitalization of almost $8.95 billion.
Goodlettsville, Tenn.-based Dollar General made the offer to Family Dollar's board in a letter disclosed Monday.
The competing bid values the Charlotte, N.C.-based discounter at nearly $9.6 billion including cash and debt. Dollar General said in its announcement that its offer gave Family Dollar a $9.7 billion valuation.
Dollar General said that combining the two retailers would create a powerhouse with sales of over $28 billion and a chain of nearly 20,000 stores in 46 states, solidifying the acquirer's position as the largest dollar-themed retailer. It would also, importantly, generate cost-saving synergies of $550 million to $600 million per year after three years.
Dollar General said it can address any potential antitrust issues as a result of the transaction by divesting up to 700 stores to get approval.
Goldman Sachs (GS) and Citigroup Global Markets (C) have agreed to provide committed financing for the transaction, including the $305 million termination fee payable to Dollar Tree if Dollar General were to succeed with its own offer.
Dollar Tree's offer, which included a combination of stock and cash, valued Family Dollar at $74.50 per share, equating to a market cap of about $8.49 billion when taking into account the nearly 114 million shares outstanding.
The enterprise value of Dollar General's bid is about $9.57 billion and is approximately 12.1 times the roughly $790 million in Ebitda the company expects to generate for the fiscal year ending Aug. 31, according to data provided by Bloomberg. The enterprise value accounts for Family Dollar's total debt of nearly $780 million and $180 million in cash and equivalents, plus short-term investments, according to the latest 10-Q filed by the company on July 10.
Dollar General said its math, which includes the roughly $9.7 billion transaction value, gives Family Dollar a multiple of 11.6 times Ebitda for the last twelve months ended May 31.
Family Dollar's stock was up in midmorning trading about 4.7%, to $79.63 a share, on the news of the competing bid.
"For Family Dollar shareholders, our proposal is financially superior to the current transaction agreement with Dollar Tree and would provide Family Dollar shareholders with a substantial premium and immediate liquidity for their shares," said Rick Dreiling, Dollar General's chairman and chief executive, in a statement. "For Dollar General shareholders, the proposed combination of Dollar General and Family Dollar would be a significant strategic opportunity to create immediate and lasting shareholder value."
Dreiling, in the letter to Family Dollar, said Dollar General was "surprised and disappointed to find out you had entered into a merger agreement with Dollar Tree." He also said he was postponing his retirement, and would remain CEO of Dollar General through May 2016 to oversee the integration of the two companies if his bid succeeded.
Dreiling said that beyond May 2016, if asked, he would agree to continue to serve as a board member and chairman.
Dollar Tree declined to comment. Family Dollar did not respond to a request for comment.