Update: Dollar General Makes An Acquisition Bid For Family Dollar Stores

Aug.18.14 | About: Dollar General (DG)

Summary

Dollar General bids $78.50 per share for Family Dollar, topping Dollar Tree’s $74.50.

This event lowers my bullishness on Dollar Tree.

Though many saw it coming, it actually surprised me.

The dollar bidding war has begun. Dollar Tree (NASDAQ:DLTR) had made an offer to buy Family Dollar (NYSE:FDO) at $74.50 in a combination of stock and cash. The process was in the works to close the transaction, and I wrote about the new combined company in my last article, "Is Dollar Tree's New Marriage To Family Dollar A Sinful Move?" as if it were already a done deal. I may have been wrong.

Now Dollar General (NYSE:DG) has thrown its hat into the ring with a $78.50 all-cash bid. CEO Rick Dreiling of Dollar General stated, "For Family Dollar shareholders, our proposal is financially superior to the current transaction agreement with Dollar Tree and would provide Family Dollar shareholders with a substantial premium and immediate liquidity for their shares."

Dollar General has a more similar business model to Family Dollar, many argue, but I figured it just wasn't going to happen in light of the Dollar Tree process already underway. It seems like bidding wars in general aren't as common these days as they used to be. In light of this surprise, I believe it negatively affects Dollar Tree. Either Dollar Tree will lose the bidding war and lose the associated benefits that come along with it, or Dollar Tree will have to pay an even higher bid which of course means less money available for shareholders long term. The only way Dollar Tree could theoretically benefit is if Family Dollar just outright refuses any bid from Dollar General but that doesn't seem likely or in the best interest of shareholders.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.