The battle for Family Dollar continues to rage. The object of two takeover bids from discounter rivals Dollar Tree and Dollar General, Family Dollar rebuffed the higher-priced offer in favor of its existing deal. On Monday Dollar General made an unsolicited bid to acquire Family Dollar Stores for $78.50 per share, a total of $9.7 billion, in cash. The combination would solidify Dollar General’s position as the largest small-box discount retailer in the U.S., with nearly 20,000 stores across 46 states and annual sales of about $28 billion. That bid tops an offer from Dollar Tree, at $74.50 per share, or some $8.5 billion in total, that was announced July 28.
Family Dollar executives made it clear that they aren’t interested. “Our board reviewed, with our advisers, all aspects of Dollar General’s proposal and unanimously concluded that it is not reasonably likely to be completed on the terms proposed,” said Family Dollar Chairman and CEO Howard R. Levine, in a press release. “Accordingly, our board rejects Dollar General’s proposal and reaffirms its support for the pending merger with Dollar Tree.”
Dollar General says it is prepared to divest up to 700 stores to comply with antitrust requirements. That amounts to roughly the same percentage as Dollar Tree agreed to divest for the same reason.
Meanwhile, landlords are eager to see Family Dollar absorbed into a more profitable competitor’s tent. “When you have multiple retailers in the similar category with a similar pricing strategy, it makes sense for them to join forces,” said Daniel B. Hurwitz, chief executive of DDR Corp., which has 86 Dollar Tree stores and one Family Dollar store in its portfolio. “We’ve seen it with OfficeMax and Office Depot. We thought that was a good idea. And we certainly think that this is a good idea as well.”
Retailers with strategies that involve opening lots of new stores, such as what is happening in the dollar-store sector, face higher occupancy rates than in the past and are having to consider acquisitions and mergers to achieve their goals, Hurwitz says. “We have nothing new being built,” he said. “Finding the square footage necessary to sustain those growth aspirations was going to be near impossible. Retailers have to grow internally or externally. Internally is tough in a non-inflationary environment. And when very little is being built and the supply-demand dynamic is heavily in favor of the landlord, joining forces makes a lot of sense.”