There is the potential for consolidation between two of the largest retailers among discount variety stores. Dollar General (NYSE:DG) and Dollar Tree (DLTR) have been aggressively bidding to acquire Family Dollar (FDO), which is one of the former two companies' largest competitors. However, there have been some major new developments in the last few days. In my previous article on DG, I mentioned that the company would end up winning the bidding war between these two companies because of its higher bid and the similarities in their business models. But some new statements from proxy firms shifted the pendulum in favor of DLTR.
Glass Lewis & Co, which is a leading independent proxy voting and corporate governance advisory firm, has made statements, given below, on January 14, 2015. These statements have strengthened DLTR's case and encouraged the shareholders to vote in favor of DLTR. Opinions of proxy firms are taken seriously by investors, especially institutional investors, as is evident from the postponement of the FDO shareholder meeting to January. We should also keep in mind that these proxy firms previously advised the shareholders to oppose the voting and consider DG's higher bid. The DG bid was higher than DLTR's bid by $5.5 per share. FDO's shareholders are scheduled to meet on January 22, 2015, and are expected to accept DLTR's offer.
"[W]e believes the approval of the merger with Dollar Tree is in the best interests of Family Dollar shareholders. Accordingly, we recommend that shareholders vote FOR this proposal using the WHITE proxy card."
"Overall, we agree with the board's determination that the merger with Dollar Tree delivers attractive value in the form of immediate upfront cash and upside participation in the combined company, as well as greater closing certainty. We also continue to believe, as we have from the beginning, that a merger with Dollar Tree is strategically and financially compelling."*
"[W]e believe the risk/reward dynamics at play here now favor acceptance of the Dollar Tree merger over either the Dollar General offer or the potential further delay of the Dollar Tree merger."
DG's management rejected the higher bid offer because of antitrust laws. Now DG has decided to go for a hostile takeover and it will take its higher offer directly to FDO's shareholders. It has also extended the deadline for its tender offer of $80 per share to January 31, 2015.
In my last article, I mentioned the company has said that it is willing to divest as many as 1,500 stores to win the approval of the FTC. DG also said that it is actively communicating with the FTC to find out an estimate for divestiture. This statement was made last month by the company, and so far it has not come up with an estimated number. On the other hand, DLTR has recently announced an estimated number of 300 divestitures and is expected to complete the talks with the FTC by the end of this month. I believe DG's management's silence in this regard is a good indication for investors.
