Dollar General Corp., spurned twice in its attempt to buy Family Dollar Stores Inc., took its $9.1 billion offer directly to shareholders in a hostile bid.
Dollar General, based in Goodlettsville, Tennessee, has commenced an offer for all Family Dollarshares at $80 each, according to a statement today. The move follows Family Dollar’s rejection of an acquisition proposal at that price last week. The takeover target has accepted a lower bid from DollarTree Inc. instead, saying that deal will more easily gain regulatory clearance.
The hostile offer ratchets up a three-way takeover battle that has grown increasingly rancorous. Dollar General has suggested that Family Dollar would prefer the Dollar Tree transaction in part because it includes a management role for Chief Executive Office Howard Levine. Family Dollar, meanwhile, has said that Dollar General hasn’t sufficiently dealt with antitrust concerns for a merger that would create a massive retail chain with almost 20,000 locations.
Letting shareholders vote on the bid will put those questions to the test, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.
“They have a good chance of winning a hostile takeover battle unless Dollar Tree matches their offer,” he said. “Family Dollar’s institutional stockholders are less concerned about the antitrust risk in theDollar General offer than Family Dollar’s management wants them to be.”
The contest for Family Dollar began in July, when the company agreed to be acquired by Dollar Tree for $8.5 billion, or $74.50 a share. That deal would merge the market’s No. 2 and No. 3 companies, potentially creating a new leader. Dollar General then stepped in with an unsolicited bid of $78.50 in August, aiming to maintain its perch atop the industry.
After that offer was rejected because of antitrust concerns, Dollar General increased its price to $80 a share in cash. Along with the sweetened bid, it pledged to divest as many as 1,500 locations to placate regulators, up from 700 in its earlier offer. It also said it would pay Family Dollar $500 million if the deal failed to garner approval.
Wal-Mart Stores Inc., the largest retail chain in total revenue, has served as a wild card in the saga. It’s pushing deeper into the market for neighborhood discount stores, potentially providing more competition within the industry. To get the deal past the Federal Trade Commission, Dollar General may have to establish that Wal-Mart and other retailers provide enough of a counterweight to a dominant dollar-store chain.
“We now can begin the antitrust review process and will have an opportunity to present our position directly to the FTC,” Dollar General CEO Rick Dreiling said in today’s statement. “As we previously have stated, we are confident in the results of our antitrust analysis, and we look forward to a constructive dialogue with the FTC.”
Dollar General said its tender offer isn’t conditional upon any financing arrangements and has written funding commitments from Goldman Sachs Group Inc. and Citigroup Inc. The offer expires on Oct. 8.
Family Dollar shares rose as much as 5 percent to $82.64 in early trading after the tender offer was announced.
In snubbing Dollar General’s bid, Family Dollar said its experience with FTC regulators reviewing the Dollar Tree deal led it to believe a Dollar General merger would have a harder time getting clearance. Family Dollar and Dollar General have a similar business model, with the chains selling products at multiple prices and mostly catering to low-income shoppers.
Dollar Tree, in contrast, attracts more middle-class consumers and sells most of its items at $1. The Chesapeake, Virginia-based company has said it’s ready to divest as many stores as necessary to complete a merger with Family Dollar. The Dollar Tree acquisition was slated to close as early as November.