DealBook: Dollar General Makes Rival Bid for Family Dollar Stores

Photo Family Dollar has been under pressure from activist investors both outside and inside its boardroom.Credit Janet S. Carter/Kinston Free Press, via Associated Press Related Links

Updated, 8:19 a.m. | A bidding war is poised to erupt in the dollar-discount market.

Dollar General said on Monday that it was offering $8.9 billion to buy Family Dollar Stores, in an effort to break up its planned merger with Dollar Tree.

Under the terms of the offer, Dollar General would pay $78.50 a share in cash. That is significantly more than the $74.50 a share than Dollar Tree's original cash-and-stock bid was worth when it was announced last month.

Including debt, Dollar General's offer is valued at $9.7 billion. The company is also willing to pay the $305 million break-up fee that would be owed to Dollar Tree if that deal were broken off.

The emergence of the unsolicited takeover bid promises a potential clash over the fate of Family Dollar, which has been under pressure from activist investors both outside and inside its boardroom.

Both Carl C. Icahn, who disclosed a stake in Family Dollar in June, and Nelson Peltz, who gained a board seat nearly three years ago after trying to buy the entire company, had expressed concern over the discount retailer's stock price.

Yet Family Dollar had been weighing a potential sale of itself for several months, and had been talking with Dollar Tree by March.

Still, investors had long considered Dollar General a likely bidder. In a letter to Family Dollar sent on Monday, the bigger retailer said it was "surprised and disappointed" to learn of the deal with Dollar Tree last month.

On a conference call with analysts, Richard W. Dreiling, Dollar General's chairman and chief executive, said that had he known that his smaller rival was considering a deal, he would have postponed his retirement announcement, which was made in June. He has now put that off and would stay on as chief executive until May of 2016 to help manage the combination should there be a deal.

Together with Family Dollar, the combined company would have almost 20,000 stores and more than $28 billion in revenue. Dollar General also expects to generate $550 million to $600 million of cost savings.

To ease antitrust concerns, Dollar General said it would be willing to sell 700 stores.

Goldman Sachs is advising on the offer and, along with Citigroup, is offering to finance the bid. Simpson Thacher & Bartlett is providing legal counsel.

Photo Together with Family Dollar, Dollar General would have almost 20,000 stores and more than $28 billion in revenue.Credit Eric Gay/Associated Press
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