By Erin McCarthy
Family Dollar Stores Inc. unveiled on Monday a shareholder
rights plan with a 10% trigger, an attempt to deter investors from
gaining control of the discount retailer without first engaging in
talks with management.
The move comes after activist investor Carl Icahn revealed on
Friday a 9.4% stake in Family Dollar that consists mostly of stock
options.
In emerging as a big shareholder of the Charlotte, N.C.-based
retailer, Mr. Icahn joins a host of high-profile investors,
including Nelson Peltz's Trian Fund Management LP and Paulson &
Co., which also have large stakes in the company. Together, those
investors own about 20% of Family Dollar, positioning them to exert
greater control over the future of the company, which is
underperforming its peers in the dollar-store space.
Family Dollar said the one-year rights plan, also known as a
poison pill, isn't aimed at preventing an offer to acquire the
company. Instead, such a move is designed to dilute the value of a
stock when the trigger is hit by flooding the market with
additional shares, making it expensive for an investor to acquire a
controlling stake.
Mr. Icahn said late Friday that he plans to push the retailer's
management to explore strategic changes. He also said he might seek
board seats. In response, Family Dollar said its board and
management is open to dialogue with all shareholders.
The company is at a crossroads in its retail strategy and is one
of the few dollar stores cutting back its store growth plans. Early
this year, Chief Executive Howard Levine said the chain was
shelving a strategy that used price cuts on some items, while
keeping others elevated, and instead would emulate the everyday low
price model favored by rivals Dollar General Corp. and Wal-Mart
Stores Inc.
News of Icahn's investment pushed Family Dollar's shares sharply
higher Monday, briefly topping $70 a share to a level last seen in
November.
A number of research firms have suggested that Family Dollar's
days as a public company may be limited.
Analysts at MKM Partners said Family Dollar's management will
likely have a tougher time rebuffing activists than it did in early
2011 when Mr. Peltz's fund made a $7 billion takeover approach that
was rejected. MKM pointed to Family Dollar's underperformance
relative to its dollar store peers and its languishing stock
price.
The firm also suggested that Mr. Icahn could push for a merger
of Family Dollar with Dollar General, nothing their similarities in
size, product offerings and customer demographic. Sterne Agee,
however, called that assumption a "knee-jerk reaction," saying it
believes Dollar General took a hard look at Family Dollar last year
and passed, potentially due to unfavorable real estate.
Considering Family Dollar's struggle to gain traffic, store
closure plans and "poor leadership," Sterne Agee said fixing Family
Dollar might better be done in a private forum.
A representative from Dollar General declined to comment.
Both Dollar General and Dollar Tree Inc. shares got a boost from
the developments, with Dollar General touching an all-time high of
$65.99, as analysts continued to play up their longer-term
prospects.
Paul Ziobro contributed to this article.
Write to Erin McCarthy at erin.mccarthy@wsj.com
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