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Bargain basement

12 January 2015 By Kevin Allison

Sometimes, more cash makes less sense. The latest salvo in the battle for bargain-bin retailer Family Dollar may be enough to make Dollar Tree’s $8.5 billion bid a winner. Rival discounter Dollar General offered $9.1 billion – and a higher cash stake – but probably couldn’t satisfy U.S. trustbusters without closing more outlets. The Dollar Tree deal adds up for selling shareholders.

Family Dollar on Monday shared the results of discussions with federal antitrust officials – and they don’t look good for Dollar General. Family said the Federal Trade Commission had indicated that a transaction with Dollar General would create competition issues involving more than 5,800 of the combined company’s stores. Only 310 outlets would raise trustbuster eyebrows if shareholders approved the lower Dollar Tree offer.

The final tally of store closings required after a Dollar General acquisition would probably be much lower than 5,800 – perhaps closer to 3,500 or 4,000 once duplicate locations are taken into account, according to Family Dollar. Yet when General sweetened its offer for Family Dollar in September, it said it would be willing to jettison 1,500, tops. The new information suggests that might not be enough to gain antitrust approval.

Dollar General has yet to respond publicly to the new information, but it still has options. The company could raise its bid again, increase the number of stores it is willing to shed or try to persuade the trustbusters that their analysis is flawed.

A Dollar General spokesperson says the company expects to provide an update before Family Dollar shareholders vote on the Dollar Tree deal next week. The ballot was postponed twice in December, and Dollar Tree warned Family Dollar last Friday that it was unwilling to accept any further delays.

Dollar General is offering $80 per share in cash – a financially superior offer to Dollar Tree’s $74.50 cash-and-shares bid. A Breakingviews analysis based on comparable deals suggests Dollar Tree could top Dollar General’s offer without destroying value for its shareholders.

Accepting a lower price might rankle. But barring a convincing rebuttal from Dollar General, that’s probably the best option for Family Dollar shareholders.


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