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Summary

  • Family Dollar announced Thursday that it would reject Dollar General’s $9 billion takeover offer and reiterated support for Dollar Tree’s $8.5 billion offer.
  • I had predicted that there would be difficulties in a Dollar General bid, including Family Dollar CEO Levine and Trian Management’s support of Dollar Tree.
  • However, there are those on Family Dollar’s board who do not support the Dollar Tree bid and this only confirms my opinion that volatility is on the horizon.

Family Dollar (FDO) announced Thursday that it would reject Dollar General (NYSE:DG)'s $9 billion takeover bid for the discount retail chain, citing antitrust concerns and reiterating its acceptance of Dollar Tree (NASDAQ:DLTR)'s earlier bid for $8.5 billion.

A few weeks ago, I predicted that Dollar General would enter the bid for Family Dollar and that such a bid would face hurdles - but that those issues were not insurmountable (Read the article here). I noted then that "Dollar General would face significant hurdles in issuing a counterbid to Dollar Tree's offer for Family Dollar, but it isn't impossible. Family Dollar would be a more synergetic fit for Dollar General, and those synergies add value to the deal. Even if Dollar General does not ultimately succeed, its efforts could push Family Dollar's price much higher."

Family Dollar's rejection of Dollar General's offer supports those difficulties, but it is unclear how this rejection will affect the offer price. Family Dollar CEO Howard Levine and activist hedge fund Trian Management have a combined stake of 16% in Family Dollar and both have expressed support for the Dollar Tree bid. However, Carl Icahn still has a 3.61% stake in Family Dollar and others on Family Dollar's board, such as Shiva Stein, believe the Dollar Tree offer is too low. In fact, Stein filed a suit a few weeks ago to block the Family Dollar-Dollar Tree merger alleging that Dollar Tree's offer "undervalues the company and that its directors failed to shop around for the highest price." The combination could lead to a proxy war or at least an insistence that Dollar Tree up its bid. Expect volatility.

Source: Update: Family Dollar Rejects Dollar General Acquisition