DealBook: Dollar Tree to Buy Family Dollar for $8.5 Billion

Photo A Dollar Tree store in Miami.Credit Joe Raedle/Getty Images

Updated, 7:06 a.m. | Dollar Tree agreed on Monday to buy Family Dollar Stores for about $8.5 billion in cash and stock, uniting two of North America's biggest deep-discount retailers.

The deal comes amid pressure on Family Dollar by the activist investor Carl C. Icahn, who urged the company last month to explore a sale of itself. But Family Dollar said in a statement that it had been exploring strategic options since the winter.

Under the terms of Monday's deal, Dollar Tree will pay $74.50 for each share of Family Dollar. The bid is made up of $59.60 a share in cash and Dollar Tree stock worth about $14.90. Including debt, the deal values the target company at about $9.2 billion.

The bid represents a premium of nearly 23 percent to Family Dollar's closing price on Friday.

Shares in Family Dollar were up about 22 percent in premarket trading on Monday, at $74, while shares in Dollar Tree were up about 6.5 percent, at $57.75.

Shareholders representing about 16 percent of Family Dollar's shares, including its chief executive, Howard R. Levine, and the investment firm of the billionaire Nelson Peltz, have already agreed to support the deal.

Together, the two companies will have more than 13,000 stores in 48 states and in Canada, and more than $18 billion in revenue. Dollar Tree, which sells its wares for $1 or less, intends to keep Family Dollar – which has a number of low-cost price points – as a separate brand.

"This is a transformational opportunity," Bob Sasser, Dollar Tree's chief executive, said in a statement. "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."

The companies expect to realize about $300 million in annual cost savings by the end of the third year after closing, which is expected by early next year.

Photo Carl Icahn had urged Family Dollar to explore a sale.Credit Brendan McDermid/Reuters

It is unclear whether the transaction will please Mr. Icahn, who owns a nearly 10 percent stake and who had threatened to wage a potentially messy fight for seats on Family Dollar's board if it did not pursue a sale.

But Mr. Peltz's Trian Partners, which gained a board seat nearly three years ago after failing to take the company private, said it was pleased by the deal.

"Trian strongly believes that the combination with Dollar Tree represents the best path forward for Family Dollar and is a great outcome for all of the company's shareholders," a representative for the hedge fund, which owns a 7.3 percent stake, said in a statement. "By joining with Dollar Tree, Family Dollar is becoming part of a stronger organization that will drive significant value for shareholders of both companies."

Mr. Icahn was not immediately available for comment.

Dollar Tree was advised by JPMorgan Chase and the law firms Wachtell, Lipton, Rosen & Katz and Williams Mullen. Family Dollar was advised by Morgan Stanley and the law firm Cleary Gottlieb Steen & Hamilton.

Photo A Family Dollar store in Springfield, Vt.Credit Ilana Panich-Linsman for The New York Times
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