Dollar Tree To Acquire Family Dollar In Around $8.5 Bln Cash, Stock Deal

(RTTNews) - Discount retailer Dollar Tree, Inc. (DLTR) Monday said it has entered into a definitive merger agreement to acquire rival Family Dollar Stores Inc. (FDO) in a cash and stock transaction worth about $9.2 billion enterprise value. 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.

Under the deal terms, Family Dollar shareholders will receive $74.50 for each share they own, comprised of $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.

In pre-market activity, Dollar Tree shares are gaining $4.03 or 7.43 percent, and trading at $58.25, while Family Dollar shares are gaining $14.59 or 24.05 percent, and trading at $75.25.

Dollar Tree said the acquisition is consistent with its vision to be the leader in value retailing. The company also projects an estimated $300 million of annual run-rate synergies to be fully realized by the end of the third year post-closing. The combined company expects to generate significant free cash flow, enabling it to pay down debt rapidly.

In its statement, Dollar Tree said the deal has been unanimously approved by the Boards of Directors of both companies, and is expected to close by early 2015. At the closure, Family Dollar shareholders will own no less than 12.7 percent and no more than 15.1 percent of Dollar Tree stock.

Family Dollar recently adopted a poison pill after the activist investor Carl Icahn disclosed a 9.39 percent stake holding in the firm and called for the firm's immediate sale. Icahn also asked to add three directors nominated by him to speed up the process.

With the acquisition, the combined Dollar Tree will have over 13,000 stores in 48 states and five Canadian Provinces, sales of over $18 billion, and more than 145,000 associates.

Dollar Tree said it intends to finance the acquisition through a combination of existing cash on hand, bank debt and bonds.

Howard Levine, CEO of Family Dollar, will remain with the company and report directly to BobSasser, CEO of Dollar Tree. Upon closing, Levine will become a Dollar Tree Board member.

In early July, Family Dollar reported a sharp decline in third-quarter profit, mainly on restructuring charges and lower comparable store sales. Further, the company backed its fourth-quarter earnings forecast, and tightened fiscal 2014 view. Family Dollar also noted that its June comparable store sales were approximately flat.

In the deal, J.P. Morgan Securities LLC acted as exclusive financial advisor to Dollar Tree, while Morgan Stanley & Co. LLC acted as exclusive financial advisor to Family Dollar.