Sep. 2 was a big day for investors who own shares in Family Dollar (NYSE:FDO). After news broke that its larger rival, Dollar General (NYSE:DG), offered to buy the discount retailer for $80 per share (or $9.1 billion), 2% above the $78.50 previously offered by the retailer, shares of the takeover target inched up in pre-market trading. Not only does Dollar General's advanced proposal consist of an all-cash payment, it flies in the face of the $8.50 billion bid made by Dollar Tree (NASDAQ:DLTR) to acquire Family Dollar.
Bid History for Family Dollar
|Date||Action||Price||Premium over Pre-Offered Price|
|Jul. 25||Family Dollar Prior to Bid||$60.66||0%|
|Jul. 28||Dollar Tree Bids||$74.50||22.8%|
|Aug. 18||Dollar General Failed Bid||$78.50||29.4%|
|Sep. 2||Dollar General Re-Bid||$80.00||31.9%|
After Dollar General's previous bid, which was around 5% greater than the price Family Dollar agreed to be purchased for by Dollar Tree, the acquiree stated that antitrust issues might jeopardize any sort of deal with Dollar General. In order to address this uncertainty, Dollar General has agreed to divest up to 1,500 stores should the FTC protest a deal on antitrust concerns, up from the 700 under its previous proposal. In addition to this provision, management has offered Family Dollar a $500 million breakup fee in the event that antitrust issues prevent a deal from closing.
In a previous article I wrote about Dollar General, I highlighted how slower growth prospects (as shown in its most recent quarterly release) might be the big driver behind its push to buy Family Dollar. With sales per square foot of $220, 20% above Family Dollar's $183, just mimicking its current strategy within Family Dollar stores would help push sales up significantly. This would, however, be somewhat offset by the $2.36 billion in sales the business could lose if the FTC does force the retailer to divest the 1,500 locations it's willing to rid itself of (assuming that its store closures have the same revenue per store that the company's average revenue per store stands at in aggregate).
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