CHARLOTTE: Dollar General enters bidding for Family Dollar - WNCN: News, Weather

Dollar General enters bidding for Family Dollar

Posted: Updated:
File Photo File Photo
NEW YORK -

Dollar General isn't about to be left out in the cold. The discounter is starting a bidding war for Family Dollar with an approximately $8.95 billion offer as it attempts to trump a Dollar Tree bid.

For Dollar General, the decision to enter the fray was clear because Family Dollar had been on its radar for a while. Dollar General Chairman and CEO Rick Dreiling said during a conference call Monday that the company had expressed interest in combining with Family Dollar multiple times over the last few years.

While Dreiling didn't disclose if there'd been any sticking points in working out an agreement in the past, he said Dollar General was very surprised when Family Dollar announced its deal with Dollar Tree. Despite the shock, Dollar General remains undeterred in trying to work out a transaction.

"It's all water under the bridge. We're ready to move forward," Dreiling said.

While Dreiling was planning to retire from the CEO post in May 2015, he's agreed to postpone his retirement until May 2016 in order to help with the integration of the two companies.

One reason Dollar General is angling for Family Dollar is its customer base. Dreiling said that Family Dollar is strong in metropolitan areas, while Dollar General's strength lies in rural markets.

"Maybe we'll be able to learn something from each other," he said.

The two businesses also have similar pricing strategies, offering shoppers most products at $10 or less. At Dollar Tree, everything in its stores costs just a buck.

While Dollar General and Family Dollar have several complimentary aspects of their businesses, a combination would also help eliminate some competition in the sector.

Dreiling said that even though retailers like Wal-Mart Stores Inc. have been opening smaller-format stores to try to lure lower-income customers, Dollar General's business has actually been hurt worse when a Family Dollar store opens near one of its locations.

But that doesn't mean that Wal-Mart and other retailers like Kroger Co. aren't a competitive threat still. By bringing Family Dollar into the fold, Dollar General can not only eliminate the rivalry — it can also bolster its muscle to help ward offer bigger players.

A Dollar General and Family Dollar combination would create a chain with almost 20,000 stores in 46 states and sales of more than $28 billion.

Family Dollar has also come into play because of its business struggles. The Charlotte, North Carolina company has been shuttering stores and cutting prices in hopes of boosting its financial performance. In June investor Carl Icahn urged the company to put itself up for sale.

Dollar General Corp. said it would pay $78.50 per share in cash. That's 3 percent higher than Family Dollar Stores Inc.'s Friday closing price of $76.06. Dollar General put the deal's value at $9.7 billion.

Last month Dollar Tree Inc. made an $8.5 billion bid for Family Dollar. It offered to pay $59.60 in cash and the equivalent of $14.90 in shares of Dollar Tree for each share held. The companies valued the transaction at $74.50 per share at the time. Including debt and other costs, the companies estimated the transaction to be worth approximately $9.2 billion.

It remains to be seen if Dollar Tree will boost its offer for Family Dollar, and Wal-Mart recently said it's not interested in acquiring a dollar chain. Dreiling would not comment on whether Dollar General would be willing to increase its bid.

"We have a great deal on the table. Let's let it all play out," he said.

Representatives for Dollar Tree did not immediately respond to requests for comment. Family Dollar said its board would review the proposal.

Dollar stores really came to the forefront of consumers' minds during the recession, as people across income groups searched for ways to save money. To attract a broader array of customers, they also expanded their offerings to include more groceries and brand-name products, instead of just the party favors and other knickknacks people often associated with them.

More recently, however, sales at dollar stores have been suffering because the lower-income customers who shop there are facing persistent job instability and slow wage growth in the aftermath of the recession. And higher-income customers began to shift away from dollar stores a bit once the economy began to strengthen.

If Dollar General winds up reaching an agreement with Family Dollar, the Goodlettsville, Tennessee company anticipates annual savings of $550 million to $600 million three years after closing. Integration costs are projected to total between $300 million and $400 million.

Dollar General believes it can quickly address any antitrust issues and is willing to divest up to 700 of its stores in order to get the necessary approvals for the transaction. Dollar Tree had agreed to divest 500 of its U.S. stores for its proposed deal.

Dreiling has also agreed to remain as a director — and would be willing to serve as chairman — if asked by the board and elected by shareholders. Todd Vasos, Dollar General's chief operating officer, will be responsible for handling the day-to-day integration of the two companies.

Dollar General said that Goldman Sachs and Citigroup Global Markets Inc. have agreed to provide committed financing, which would include the $305 million termination fee due to Dollar Tree if Family Dollar chooses a deal with Dollar General instead.

Dollar General's board unanimously approved the Family Dollar deal. The company anticipates completing the transaction on a similar time frame as the one Dollar Tree announced, which was by early 2015.

Shares of Dollar General stock climbed $6.41, or 11 percent, to $63.87 in afternoon trading.

Family Dollar's stock gained $3.83, or 5 percent, to $79.89. Shares of Dollar Tree, which is based in Chesapeake, Virginia, fell $1.12, or 2 percent, to $54.48.

RELATED STORIES

Copyright 2014 The Associated Press. All rights reserved.

  • Trending StoriesMore>>

  • Letter found with body of App State student, police say

    Letter found with body of App State student, police say

    Monday, September 15 2014 5:16 PM EDT2014-09-15 21:16:12 GMT
    The body of Anna Smith was discovered in a heavily wooded area in Boone.The body of Anna Smith was discovered in a heavily wooded area in Boone.
    The Boone Police Department said a letter was discovered with the body of an Appalachian State University student, indicating her death may have been a suicide.
    The Boone Police Department said a letter was discovered with the body of an Appalachian State University student, indicating her death may have been a suicide.
  • 'Party mansion' owner convicted of tax and healthcare fraud

    'Party mansion' owner convicted of tax and healthcare fraud

    Friday, September 12 2014 12:38 PM EDT2014-09-12 16:38:35 GMT
    File photoFile photo
    A former Raleigh resident, known for the wild parties held at his “party mansion” in North Raleigh, was sentenced to more than 10 years in prison for tax fraud, healthcare fraud and money laundering crimes, according to a United States Department of Justice release.
    A former Raleigh resident, known for the wild parties held at his “party mansion” in North Raleigh, was sentenced to more than 10 years in prison for tax fraud, healthcare fraud and money laundering crimes, according to a United States Department of Justice release.
  • Urban Outfitters faces backlash for controversial sweatshirt

    Urban Outfitters faces backlash for controversial sweatshirt

    Monday, September 15 2014 12:43 PM EDT2014-09-15 16:43:43 GMT
    The website of clothing outlet Urban Outfitters featured a controversial, one-of-a-kind shirt briefly Monday morning before it sold, but not before causing a stir on the Internet.
    The website of clothing outlet Urban Outfitters featured a controversial, one-of-a-kind shirt briefly Monday morning before it sold, but not before causing a stir on the Internet.
  • Trending Stories on WNCN.com

  • North Carolina NewsMore>>

  • Teen dies, 7 others injured after truck crash in Supply

    Teen dies, 7 others injured after truck crash in Supply

    Monday, September 15 2014 11:55 PM EDT2014-09-16 03:55:29 GMT
    Emergency crews were dispatched to the single vehicle accident at 1:35 A.M. on Sunday morning, according to Captain David Robinson with the Coastline Volunteer Rescue Squad. Robinson said several people
    Authorities have released the identities of the teenager who was killed and the seven others who were badly hurt in a violent pick-up truck crash in Brunswick County.
  • Report: NC among states most tied to income tax

    Report: NC among states most tied to income tax

    Monday, September 15 2014 10:38 PM EDT2014-09-16 02:38:29 GMT
    The income gap that's been growing for years increasingly is undermining public treasuries in North Carolina and other states, a new report by the investment rating agency Standard Poor's says.
    The income gap that's been growing for years increasingly is undermining public treasuries in North Carolina and other states, a new report by the investment rating agency Standard Poor's says.
  • NCDOT, environmental group talk on Bonner Bridge

    NCDOT, environmental group talk on Bonner Bridge

    Monday, September 15 2014 6:51 PM EDT2014-09-15 22:51:03 GMT
    File photoFile photo
    The two sides facing off in a dispute over a replacement for the Bonner Bridge says talks are underway to break the impasse.
    The two sides facing off in a dispute over a replacement for the Bonner Bridge says talks are underway to break the impasse.
Powered by WorldNow

1205 Front St., Raleigh
N.C., 27609

Telephone: 919.836.1717
Fax: 919.836.1687
Email: newstips@wncn.com

Can't find something?
Powered by WorldNow
All content © Copyright 2000 - 2014 Media General Communications Holdings, LLC. A Media General Company.