Dollar General Makes Superior All-cash Offer Of $9.7 Bln For Family Dollar

(RTTNews) - Discount retailer Dollar General Corp. (DG) Monday announced that it has made a superior all-cash proposal of $78.50 per share or $9.7 billion in total to acquire rival Family Dollar Stores, Inc. (FDO), thwarting Dollar Tree, Inc.'s (DLTR) $74.50 per share or $9.2 billion cash and stock deal.

Dollar General said the proposed transaction would be low double-digit accretive on a percentage basis to earnings in the first full year excluding implementation and transaction costs. Dollar General also expects to generate significant synergies of $550 million to $600 million on an annual run-rate three years post-closing.

In pre-market activity, Dollar General shares were gaining 11.21 percent, and trading at $63.90, while Dollar Tree was losing 1.36 percent, at $54.85.

Dollar General, which conveyed the proposal to the Family Dollar's Board in a letter, noted that such an offer would deliver increased consideration and immediate liquidity to Family Dollar's shareholders.

It was on July 28 that Dollar Tree announced its definitive merger agreement to acquire Family Dollar for $59.60 in cash and $14.90 in Dollar Tree stock. The consideration represents a 22.8 percent premium over Family Dollar's closing price as of July 25. Dollar Tree expects the acquisition to be accretive to cash earnings per share within the first year post-closing, excluding one-time costs to achieve synergies.

Dollar General today said its all-cash proposal would provide Family Dollar shareholders with a substantially superior valuation to that of Dollar Tree.

According to Dollar General, the proposed combination would solidify its position as the largest small-box discount retailer in the U.S. with nearly 20,000 stores and sales of over $28 billion. The proposal has the unanimous approval of the Board of Directors of Dollar General.

In its statement, Dollar General said it has undertaken significant economic and antitrust analysis. The company is prepared to commit to divest up to 700 retail stores in order to achieve the requisite approvals - approximately the same percentage in the Dollar Tree merger deal.

Dollar General added that it is prepared to enter into a definitive merger deal, and is also prepared to revise the agreement to permit Family Dollar to continue to pay its regular quarterly cash dividend through closing on terms consistent with past practice.

Rick Dreiling, Dollar General's Chairman and Chief Executive Officer, said, "We look forward to expeditiously entering into constructive discussions with Family Dollar in order to sign a definitive merger agreement...."

Dollar General added that Dreiling has agreed to postpone his previously-announced retirement and remain in the role of Chairman and Chief Executive Officer of the combined company until May 2016, if a merger agreement is signed, to oversee the successful integration.

Beyond that date, Dreiling has also agreed to remain as a Board member and would be willing to serve as Chairman.

In the offer, Goldman Sachs and Citigroup Global Markets Inc. have agreed to provide committed financing for all of the necessary financing, including the $305 million termination fee payable to Dollar Tree.

Goldman, Sachs & Co. is acting as financial advisor to Dollar General and Simpson Thacher & Bartlett LLP is acting as its legal counsel.

Family Dollar closed Wednesday's trading at $76.06, down $0.28 or 0.37 percent.