Family Dollar Continues to Stiff-Arm Dollar General

WASHINGTON (The Deal) -- Family Dollar Stores (FDO)  on Friday formally rejected the revised unsolicited bid from Dollar General (DG)  on antitrust grounds and moved to make sure any regulatory issues raised by its deal to be acquired by Dollar Tree (DLTR)  are resolved as quickly as possible.

Dollar Tree and Family Dollar have amended their merger agreement to include a commitment by Dollar Tree to divest as many stores "as necessary or advisable" to obtain antitrust clearance for the previously announced cash and stock transaction. All other terms and conditions of the merger agreement remain the same as when their deal was announced July 28. Previously, the merger agreement limited the number of store divestitures Dollar Tree was obligated to accept at 500.

The merger partners said that they expect the Federal Trade Commission on Monday to issue a second request for information extending the government's antitrust investigation of their deal, but also predicted that the deal would receive FTC approval in time to close the transaction as early as the end of November. Previously, the parties had predicted the transaction will close early in 2015.

The stepped-up timeframe is aggressive, even though the parties have insisted their deal is unlikely to face major antitrust issues, simply because the combined retails chain would have 13,000 stores and the FTC will need to conduct a granular analysis to determine which locations might feature Dollar Tree and Family Dollar stores competing near each other.

By shortening the predicted timeframe for closing the deal, Dollar Tree and Family Dollar are indicating that they won't drag out discussions with the FTC in order to keep the number of spinoffs the regulators require at a bare minimum.


When the deal was announced, company officials told analysts that the flagship stores of the two chains are not each others' closet competitors. "The Dollar Tree and Family Dollar formats serve complementary target customers," Dollar Tree CEO Bob Sasser told analysts on a conference call following the merger announcement.

Although both chains target lower-income shoppers, Dollar Tree's products are sold for a single price point, $1, and half its inventory is comprised of necessities for daily life such as health and beauty items, household cleaning supplies and paper goods. Family Dollar, on the other hand, offers a wider range of products at multiple price points and serves a broader customer base.

The stores also have a different geographic focus. Dollar Tree is more likely to be near to suburban areas and draw more middle-income shoppers, whereas Family Dollar stores are more likely to be located in urban and rural areas and a higher share of their customers are lower income.

Following the rival bid from Dollar General, Family Dollar and Dollar Tree have placed a premium on convincing shareholders that their agreement stands a better chance of being approved quickly by the FTC.

In Friday's announcement, Dollar Tree's Sasser said his company "is committed to working hard to complete our acquisition of Family Dollar as quickly as possible." The amended agreement "is clearly superior to Dollar General's revised proposal based on antitrust risk, deal certainty and time value of money."

He continued to insist that the FTC would require only a small amount of divestitures with his deal. "Unlike Dollar General, we expect to be required to divest few, if any, stores because our business model is significantly different from Family Dollar's model. Our product assortment and pricing is not driven by local competition, and we have very limited store overlap. As evidence of our confidence in and commitment to closing this transaction without delay, we are amending our merger agreement to provide for a commitment to divest as many stores as necessary to obtain antitrust clearance."

He said Dollar Tree and Family Dollar "continue to have productive discussions with the FTC...and despite the anticipated second request from the FTC, we remain confident in our ability to complete our transaction with Family Dollar by as early as the end of November 2014."


Dollar Tree is offering Family Dollar shareholders $59.60 in cash and $14.90 equivalent in Dollar Tree shares for each common share of Family Dollar owned, subject to a collar. At closing, Family Dollar shareholders would own no less than 12.7% and no more than 15.1% of the outstanding common stock of Dollar Tree.

Ed Garden, a Family Dollar director and co-founder and chief investment officer at Trian Fund Management, a large Family Dollar shareholder, stated, "we are focused on delivering to Family Dollar shareholders the highest value with certainty, and the Dollar Tree transaction does just that. Dollar Tree has taken the antitrust risk off the table by committing to divest as many stores as necessary to obtain antitrust clearance. We remain fully committed to the Dollar Tree transaction."

On Sept. 2 Dollar General raised its unsolicited bid for Family Dollar to $80 per share and threatened to take its latest offer to shareholders if Family Dollar refuses to engage in active deal talks. Dollar General's revised bid is valued at around $9.1 billion, up from its last $78.50 per share offer, and far surpassing Dollar Tree's $74.50 per share bid.

Dollar General also tried to address Family Dollar's antitrust concerns by agreeing to divest up to 1,500 stores and noted it will pay a $500 million reverse breakup fee if the proposed deal does not meet regulatory standards. The company originally said it would be willing to divest up to 700 stores and proposed to pay the $305 million termination fee Family Dollar would owe if it accepts Dollar General's rival bid.

Even though Dollar General concedes its stores are similar to Family Dollar's, it has tried to play down the antitrust risk its offer carries and has told the FTC that after combining with Family Dollar it would not have more power to raise prices. That's because dollar stores are "fill-in" retailers that customers go to mostly when they cannot find what they want their primary shopping destinations, which is in most cases Wal-Mart.

Critics of the Dollar General offer, however, say that transaction could take at least nine months for the FTC to review because of the similarity of the chains' business models.

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