In a move that caught the investment community by surprise, Dollar Tree Inc. has agreed to acquire Family Dollar Stores Inc. for about $9.2 billion in cash and stock.


Family Dollar Stores, Dollar Tree, Howard Levine, Bob Sasser, deep-discount retailer, Dollar General, Rick Dreiling, Carl Icahn












































































































































































































































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Family Dollar buy ‘transformational’ for Dollar Tree

August 11th, 2014

CHESAPEAKE, Va. – In a move that caught the investment community by surprise, Dollar Tree Inc. has agreed to acquire Family Dollar Stores Inc. for about $9.2 billion in cash and stock.

The transaction, which has been approved by the boards of directors of both chains, is expected to close by early 2015.

If completed, the combination will create the largest extreme-value or deep-discount retailer in the United States. Under the terms of the agreement, Howard Levine, chairman and chief executive officer of Family Dollar, will remain with the combined company in an unspecified role and report to Dollar Tree CEO Bob Sasser. Levine will also join the Dollar Tree board of directors upon closing.

“This is a transformational opportunity,” says Sasser. “With the acquisition of Family Dollar Stores, Dollar Tree will become a leading discount retailer in North America, with over 13,000 stores in 48 states and five Canadian provinces, sales of over $18 billion, and more than 145,000 associates on our team. We will continue to operate under the Dollar Tree, Deal$ and Dollar Tree Canada brands, and when this transaction is complete, we will operate under the Family Dollar brand as well.

“Throughout our history, we have strived continuously to evolve and improve our business. This acquisition, which enhances our footprint and diversifies our company, will enable us to build on that progression and, importantly, positions Dollar Tree for accelerated growth. By offering both fixed-price and multi-price-point formats and an even broader, more compelling merchandise assortment, we will be able to provide even greater value and choice to a wider array of customers.”

Sasser adds that the combination would extend Dollar Tree’s penetration of the lower-income customer segment as well as diversify the company’s portfolio of formats. Besides 4,673 Dollar Tree stores in the U.S. and 189 in Canada, the company operates 218 Deal$ deep-discount stores that it acquired from Supervalu Inc. several years ago.

The Dollar Tree outlets are true dollar stores, with all merchandise priced at $1 ($1.24 in Canada) or less, while the Deal$ stores are closer to the Family Dollar model, with multiple price points. Dollar Tree’s current store network is concentrated in the suburbs, and draws on a broad range of middle-income customers, whereas Family Dollar’s 8,246 stores are found in both urban and rural locales and serve a low- to lower-middle-income core ­customer.

For Family Dollar investors, the offer amounts to $74.50 per share, consisting of $59.60 in cash and $14.90 in Dollar Tree stock, representing a 22.8% premium to the $60.66 closing price of Family Dollar shares on July 25. Before the agreement was announced, Family Dollar stock had only reached the offer price once.

A deteriorating financial performance in recent quarters coupled with executive turnover, including the firing of Family Dollar’s president and chief operating officer, had provoked investors, including Carl Icahn, who had repeatedly called for the company to be sold, preferably to rival Dollar General Corp., which currently is the largest of the extreme-value retailers in both sales and store count.

However, the recent announcement that Rick Dreiling, Dollar General’s chairman and CEO, will retire as CEO by next May, effectively ended such speculation, since it was extremely unlikely that the company would undertake a major acquisition while in the midst of a leadership transition.

“Today’s announcement represents the successful culmination of a comprehensive strategic review process that our board of directors, working with its financial and legal advisors, began this last winter,” Levine says. “This combination will enable Family Dollar to accelerate efforts to improve the business and will benefit our dedicated team members, who will now be part of a larger, more diverse organization.”

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