Family Dollar Again Rejects Dollar General Offer, Backs Deal With Dollar Tree

(RTTNews) - Discount retailer Family Dollar Stores, Inc. (FDO) said Friday its board has unanimously rejected the sweetened acquisition offer made on Tuesday by rival Dollar General Corp. (DG) on antitrust regulatory issues.

Meanwhile, the Family Dollar Board has reaffirmed its recommendation in support of the deal with another rival Dollar Tree, Inc. (DLTR), which expects to close the deal as early as end of November 2014.

The move comes after an unanimous recommendation from a committee of four non-management independent directors that has been assisting Family Dollar in its consideration and exploration of strategic alternatives since January 2014.

"Our Board of Directors, with the assistance of outside advisors and consultants, reviewed all aspects of Dollar General's revised proposal and unanimously concluded that it is not reasonably likely to be completed on the terms proposed. There is a very real and material risk that the transaction proposed by Dollar General would fail to close, after a lengthy and disruptive review process," Family Dollar Chairman and CEO Howard Levine said.

Meanwhile, to alleviate antitrust issues, Dollar Tree has committed to divest as many stores as necessary to obtain the regulatory clearance. Dollar Tree and Family Dollar agreed earlier in the day on an amended merger agreement that includes the commitment of store divestiture, with all other terms of the previous offer remaining the same.

However, Chesapeake, Virginia-based Dollar Tree said it expects to divest only a few as their business model is significantly different from Family Dollar's, and have very limited store overlap.

"Dollar Tree is committed to working hard to complete our acquisition of Family Dollar as quickly as possible. Our amended agreement is clearly superior to Dollar General's revised proposal based on antitrust risk, deal certainty and time value of money," Dollar Tree CEO Bob Sasser stated.

Meanwhile, Family Dollar and Dollar Tree revealed that they expect the Federal Trade Commission or FTC, to issue a "second request" for additional information on Monday, which was expected and that they are confident regulatory approval will be obtained.

Dollar Tree agreed in late July to acquire Matthews, North Carolina-based Family Dollar Stores for $74.50 per share in a cash and stock deal valued $9.2 billion. At closing, Family Dollar shareholders would own no less than 12.7 percent and no more than 15.1 percent of the outstanding common stock of Dollar Tree.

On August 18, Dollar General made a superior all-cash proposal of $78.50 per share or $9.7 billion to thwart the Dollar Tree bid.

On August 21, Family Dollar Stores announced that its board has unanimously rejected the non-binding proposal made by Dollar General on the basis of antitrust regulatory considerations. The Family Dollar board then also unanimously reaffirmed its recommendation in support of the merger agreement with Dollar Tree.

On Tuesday, Dollar General sweetened its offer by $1.50 to $80.00 per share, and also raised the number of stores it was willing to divest if ordered by the FTC. Showing evidence of its confidence in its ability to obtain antitrust approval, it also agreed to pay a $500 million reverse break-up fee to Family Dollar relating to antitrust matters.

Ed Garden, a co-founder and partner at Trian Fund Management, L.P., a large shareholder of Family Dollar said, "Dollar General has repeatedly stated that antitrust is not a risk, yet they have put forth proposals that require Family Dollar shareholders to bear the ultimate risk. Receiving a reverse breakup fee with an after-tax value of less than $3 a share does virtually nothing to compensate the Family Dollar shareholders for assuming that risk."

The combination of Family Dollar and Dollar General would have created an entity of more than 20 thousand stores with presence in 46 states.

Meanwhile, the combined Dollar Tree-Family Dollar entity will have more than 13,000 stores in 48 states and five Canadian Provinces, generating in excess of $18 billion in annual revenues.

In Friday's regular trading session, FDO is currently trading at $79.25, down $0.81 or 1.01% on a volume of 1.22 million shares, and DG is trading at $63.00, down $1.48 or 2.30% on a volume of 2.71 million shares. Meanwhile, DLTR is trading at $55.33, up $0.31 or 0.56% on a volume of 0.50 million shares.