By Paul Ziobro
Shareholders of Family Dollar Stores Inc. overwhelmingly
approved being sold to Dollar Tree Inc., choosing regulatory
certainty over a riskier--but higher--offer from Dollar General
Inc.
The Dollar Tree deal won 89% of the vote, effectively bringing
Dollar General's longtime pursuit of its main rival to an end.
Dollar General had long eyed buying up its main competitor, but
those plans were derailed when Dollar Tree swooped in last summer
with an cash and stock offer now worth $8.7 billion.
Dollar General came in three weeks later with a $9.1 billion
all-cash offer but it failed to satisfy concerns on Family Dollar's
board that combining the biggest two dollar store chains would face
significant antitrust hurdles.
After the deal, Dollar General, the biggest of the three dollar
stores, will face a larger competitor that will have more locations
around the country. The new Dollar Tree will keep both brands and
operate both dollar store models--Dollar Tree's, where all items
are sold for $1, and Family Dollar's model, where everyday goods
and groceries are sold at a variety of discount prices.
Before the Dollar Tree offer, it was presumed that Dollar
General would be the logical suitor to buy Family Dollar, which had
attracted interest from activist investors including Carl Icahn and
Nelson Peltz's Trian Fund Management as a possible takeover
target.
Top executives and board members from Dollar General and Family
Dollar had informal conversations for years about the merits of
combining their two businesses. But those discussions never
resulted in an offer, and Dollar General Chief Executive Rick
Dreiling last June announced his retirement, thinking that the
chance for a deal was dead.
Then came Dollar Tree's surprise July bid for Family Dollar.
Mr. Dreiling has said he was floored by the move, thinking his
company was the only one with the firepower and desire to buy
Family Dollar, and he decided to postpone his retirement.
Just a month earlier, Family Dollar Chief Executive Howard
Levine said he had strongly urged Dollar General to make an
offer.
"I'm embarrassed," Mr. Levine recalled saying to Mr. Dreiling,
according to a deposition. "I feel like I'm being desperate. But I
feel I need to tell you that since you asked, you should make me an
offer." He said that he would take an offer to the board and "it
will be fully vetted."
Mr. Dreiling didn't get the hint. According to securities
filings detailing background on the deal, Mr. Dreiling walked away
from the meeting feeling there was no urgency to act.
He backtracked on his retirement plans and ultimately wound up
offering $80 a share for Family Dollar, topping the $74.50 on the
table with Dollar Tree. Family Dollar, however, turned it down,
arguing the deal couldn't get done under the given terms, mainly
that Dollar General would commit to divesting only 700 stores to
appease antitrust regulators.
In the end the lower offer with lower regulatory risk won the
day, securing the blessing of Glass, Lewis & Co. and
Institutional Shareholder Services Inc., which advise shareholders
how to vote on corporate ballots.
The development leaves Dollar General without a partner, but
analysts say its prospects remain bright with plans to open an
additional 730 stores in its coming fiscal year, and lower gas
prices providing a boon to low-end shoppers.
On Thursday, Mr. Dreiling said he would remain CEO and chairman
for another year unless a successor is appointed first.
Family Dollar, meanwhile, has suffered during the months of deal
negotiations. Its stores are in worse shape than six months ago. A
plan to lower prices has disappointed, and its latest quarter's
results were worse than expected, in part because of distractions
from the pending merger.
Activist investor Trian Fund Management LP invested in Family
Dollar half a decade ago, has an executive on the board and
supported the deal. The fund is set to book more than $325 million
in profit on its investment, according to filings.
David Benoit contributed to this article.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
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