M&A

Family Dollar Rejects Dollar General’s $9B Bid

Antitrust concerns thwarted the deal, Family Dollar says, but skeptics abound.
Iris DorbianAugust 21, 2014
Family Dollar Rejects Dollar General’s $9B Bid

Family Dollar has turned down larger rival Dollar General’s $9 billion takeover bid, saying it would most likely not hold up to antitrust scrutiny, even though Dollar General said it was planning on closing up to 700 stores, Reuters reported.

Family Dollar 2In a letter to Family Dollar, Dollar General CEO Rick Dreiling took a swipe at his counterpart there, Howard Levine, wondering if he favored Dollar Tree’s smaller $8.5 billion bid simply “because it would allow him to keep his job,” says the news wire.

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Under the Dollar Tree proposal, Levine would remain CEO of the company. If Family Dollar accepted Dollar General’s offer, then Levine would be “expected to lose his job, although this has not been confirmed,” Reuters noted.

Levine called Dreiling’s charges “blatant mischaracterizations.” He maintained that the Dollar General offer did not sufficiently address the antitrust issue.

With cost-conscious consumers flocking to dollar stores, the space has been booming. According to Euromonitor International, the U.S. market increased by 46% to $48.2 billion between 2008 and 2013. It is expected to grow 18% in the next five years.

If Family Dollar had accepted Dollar General’s bid (and the merger had won antitrust approval), the combined entity would have been the largest discount retailer in North America. Reuters reported that the deal would comprise nearly 20,000 stores across 46 U.S. states and annual sales in excess of $28 billion.

The proposed combination of Dollar Tree and Family Dollar would create a company with only 13,000 stores across the United States and Canada with $18 billion in annual sales. Even so, it still would vault it ahead of Dollar General as the continent’s biggest discount retailer.

Some industry analysts share Dreiling’s skepticism about the antitrust issue being the true reason Family Dollar spurned Dollar General’s buyout bid.

Rahul Sharma, managing director of investment advisor Neev Capital, noted that larger retailers like Wal-Mart and Kroger also target low and middle-income customers. Therefore, Family Dollar’s antitrust concerns are not “insurmountable.”

Efraim Levy, an analyst at S&P Capital IQ, echoed Sharma’s doubt. “It is not clear to us why the antitrust concerns could not be resolved via methods such as store divestitures,” he told Reuters. “It might be that antitrust was not the full reason.”

Source: Family Dollar spurns Dollar General’s bid on antitrust concerns

Photo: Youngamerican, Wikimedia Commons, GNU Free Documentation License 1.2 or any later version.