By Michael Calia
Dollar stores apparently don't come cheap.
Dollar General Corp. offered about $9 billion in cash on Monday
for rival Family Dollar Stores Inc., looking to elbow out Dollar
Tree Inc., which made a competing bid three weeks ago.
Dollar General, the biggest so-called dollar store chain, has
long been considered a logical buyer of Family Dollar. Chief
Executive Rick Dreiling said he had shown interest in a deal
multiple times over the past few years and expressed surprise at
the agreement reached between his two rivals.
The acquisition would allow Dollar General to broaden its
footprint in rural markets while giving it access to Family
Dollar's robust presence in urban areas at a time when retailers
are locked in a fierce battle to attract consumers.
Shares of Family Dollar climbed early in Monday's session and
topped the per-share offer price of $78.50.
Representatives for Family Dollar and Dollar Tree didn't
immediately respond to requests for comment.
The combination of Dollar General and Family Dollar, the second
biggest deep discounter, would have about 20,000 stores in 46
states, with sales of more than $28 billion, Dollar General
said.
Last month's bid from Dollar Tree--the smallest of the three
retailers--is worth about $8.5 billion, or $74.50 a share, in cash
and stock.
Dollar General was thought to be deterred by the involvement of
activist investor Carl Icahn, according to a person familiar with
the matter. He had pressured Family Dollar to put itself up for
sale and identified Dollar General as an appropriate suitor.
As he cut its investment in Family Dollar late last month, Mr.
Icahn said he was pleased with Family Dollar's deal with Dollar
Tree and said he remained hopeful that another potential suitor
would emerge.
Mr. Dreiling of Dollar General said Monday that he would
postpone his retirement-- originally slated to happen by the end of
May of next year--to remain as the head of the combined company
through May 2016 and added that he may not have announced his
retirement if he had known Family Dollar were in play.
The executive has been credited with expanding Dollar General's
product offerings, adding more stores and boosting sales during a
difficult time for the U.S. economy. His retirement was thought to
be a blow for Dollar General's merger prospects.
Todd Vasos, Dollar General's operating chief, would oversee a
potential integration of the companies, Mr. Dreiling added.
The dollar store chains thrived during the recession as the
number of working Americans living in poverty increased by nearly
40%, according to the U.S. Bureau of Labor Statistics. The stores
appealed to cash-strapped shoppers with bargain-basement prices and
locations that were closer to their homes than many Wal-Mart
supercenters.
Despite general positive trends for dollar stores, Family Dollar
has struggled as it raised some prices in a bid to offset some
deeper discounts. At the beginning of the year, the company backed
off the strategy and cut prices on about 1,000 items while also
announcing plans to close 370 locations this year and slow the pace
of new openings.
Mr. Dreiling chalked up Family Dollar's recent struggles to a
variety of issues.
"It's a combination of a lot of little things that all add up at
the end of the day to one big thing," he said Monday, citing
product mix, pricing and store layout. He said that Family Dollar
stores would look like Dollar General stores on the inside after a
potential integration, although he said it was unclear whether
there would be changes to the stores' banners.
Dollar General said it would be prepared to divest 700 stores to
avoid antitrust issues and added Goldman Sachs and Citigroup Global
Markets Inc. have agreed to provide financing for a deal, including
for the $305 million termination fee Dollar Tree would get if
Family Dollar ends their deal.
Write to Michael Calia at michael.calia@wsj.com
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